How soon will the financial sector be back to business as usual? How soon thereafter will it be before another – perhaps even worse – crisis comes as a surprise to the industry, regulators and the world? The answers to these questions may be “much too soon”.
The period after a crisis when regulatory changes are feasible is always brief. Even after a crisis as big as today's, fatigue may soon set in: the public becomes bored; the lobbying by those fearing new restrictions is tireless; and policymakers and regulators give up.
We must start by recognising four powerful truths: the world cannot afford another such crisis for many generations; without significant changes, a repetition is quite conceivable; this is particularly true, in view of the rescues of institutions deemed too big and interconnected to fail; and, finally, regulatory curbs or countervailing incentives must offset the generous government support provided.