Nowadays, optimists pooh-pooh the notion that the failure of a major global financial operator could easily trigger a far-reaching systemic crisis because those in charge have plans in place to deal with such an event. They argue that when circumstances call for level-headed leadership, clarity of purpose, and seamless cooperation between regulators and policymakers, someone will quickly grab the baton and step in resolve the situation — just as the New York Fed President did when he orchestrated a bailout of failed hedge fund LTCM back in 1998.
Then again, when it comes to the realities of modern global finance, maybe things are different this time and, as The Australian writes, Institutions Can’t Cope With a Crisis.
National Australia Bank chief executive Michael Chaney put Reserve Bank governor Glenn Stevens on the spot at his recent speech to Committee for Economic Development of Australia.
“If you think about the international interdependence of financial institutions now, of the counter-parties all over the world in all sorts of transactions, I wondered whether you could tell us about the international institutional structures that exist to be able to react that quickly in the event of a crisis?” he asked.
Glenn Stevens could not.
“As far as I know, I’m not sure there is a terribly well developed set of protocols that we know that’s in the top drawer and we get it out and just follow it.”
“We know who to call and who are our opposite numbers,” he added hopefully, but he conceded there was much more work to be done.
Chaney identified a problem that is troubling finance leaders around the world.