Now the question is: with so much of constraints and problems, whether the system will survive?
The answer is an emphatic yes because banking is a highly regulated business.
But having flagged some of the challenges before the banks, it is incumbent upon me that I flag certain challenges for regulators.
We all know that:
the financial system is growing to be highly complex and opaque—sometimes making it difficult to assess the extent of exposures and potential spillovers. This opacity magnified the shock to confidence as the recent crisis unfolded.
the financial system has a propensity to become over-leveraged and heavily interconnected, leading to massive deleveraging and easily available propagation channels, both domestically and globally.
liquidity risks, both the funding risks incurred by institutions and the associated market liquidity risks of assets, are often much higher than recognized.
financial intermediation has increasingly shifted to the non - or less-regulated “shadow” banking sector, in large part to avoid the more stringent requirements imposed on banks.
there is a critical absence of effective mechanisms to deal with institutions that were deemed “too big to fail.”
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