The other day I was encouraging instituting monthly Friday late afternoon simulations of crises to help develop a new ethos among major market participants and the institutions (regulators, central banks, etc) that interact with them. Let's think of these as fire-drills. This proposal is not as outlandish at it sounds. After all the so-called 'stress-testing" of Banks could be an important first step toward such simulations.
In practice, the stress-tests were neither dynamic -- in that they involved individual banks and their regulators rather than real time interactions among them -- nor were they designed to change the status quo. They were a way to reassure nervous markets. It worked briefly. Of course, some now-bankrupt Irish banks passed the European stress test with flying colors, showing that outright deception is part of the present ethos of our bankers and regulators.
Recent Comments