Friday, April 2, 2010

Krugman on financial regulation

Worthwhile NYT column from Paul Krugman today on financial regulation. Krugman's main point is that regulators should worry more about the activities of banks (e.g., leverage) than their size. He points out that literally thousands of small banks were wiped out in the Great Depression because they had inadequate reserves and there was no deposit insurance to stop bank runs. Krugman also notes that Canada's big banks did ok in 2008, perhaps because they were more tightly regulated.

I still worry about the political economy of large financial institutions, in particular their ability to use campaign contributions and lobbyists to obtain regulatory outcomes to their own liking. Maybe Krugman will deal with this issue in a later column.

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