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The Transatlantic Banking Crisis: Lessons and EU Reforms

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  • Welfens, Paul J. J.

    (University of Wuppertal)

Abstract

The key dynamics of the transatlantic banking crisis are analyzed – with emphasis on the fact that the banking disaster of 2007/08 was not really a surprise –, and the five key requirements for restoring stability and efficiency in the EU/OECD banking sector are highlighted. Most important, however, is the introduction of a new tax regime designed to encourage bankers to take a more long term time horizon in decision-making and to reduce excessive risk-taking. Banks and funds should be taxed not only on the basis of profits but also on the basis of the variability – read variance – of the rate of return on equity: the higher the variability over time the higher the tax to be paid. The quality and comprehensiveness of banks’ balance sheets must be radically improved and all off-balance sheet activities must be included in future total balance sheets. The medium term structure of employment in terms of the breakdown nontradables/tradables will have to adjust.

Suggested Citation

  • Welfens, Paul J. J., 2009. "The Transatlantic Banking Crisis: Lessons and EU Reforms," IZA Policy Papers 2, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izapps:pp2
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    References listed on IDEAS

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    More about this item

    Keywords

    USA; globalization; EU; financial market reforms; banking;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F01 - International Economics - - General - - - Global Outlook
    • F30 - International Economics - - International Finance - - - General
    • G01 - Financial Economics - - General - - - Financial Crises

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