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February 20, 2014

Financial Regulators Are Still Flying Blind

“The recent turmoil in emerging markets raises an urgent question: If things get worse, if markets plunge or a government defaults, do regulators know which banks, hedge funds or other institutions are most at risk?”

“Almost six years after the crash, with financial regulation overhauled in the U.S. and elsewhere, you’d expect the answer to be yes. Actually, the short answer is no. Regulators charged with overseeing the financial system have vastly more data than they did before the last crisis, but not much more of a clue.”

“Five years ago, the extent and concentration of international exposure to the U.S. real estate bubble caught authorities everywhere off guard and almost sent the world into another depression. With precious little information on the investments and derivative contracts that connected financial institutions to one another, regulators were reduced to the role of firefighters. With little understanding of how far the damage could spread, governments had no choice but to risk trillions of taxpayer dollars on emergency guarantees and bailouts.”

***

Read Bloomberg editorial here.

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