Tags: Simon Johnson | bank | reform | MIT

MIT's Simon Johnson: More Needs to Be Done on Bank Reform

By    |   Monday, 24 March 2014 08:09 AM

While 29 of 30 big U.S. banks passed the Federal Reserve's annual stress test, the banking industry needs to see more change, says Simon Johnson, former chief economist of the IMF and now an MIT professor.

"We need to keep moving the ball on this issue,” he told Yahoo before the stress test results were announced.

"U.S. banks are supposed to produce a living will that shows how they should be broken up. I think there are many [government] officials who are questioning whether this exercise is being taken seriously by the banks and whether the banks are capable of demonstrating that they could fail without any government involvement."

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Banks' image has certainly taken a hit since the 2008 financial crisis, Johnson noted.

"There was an idea in 2005-2006 that banks had moved to some sort of new level in terms of technology and a philosophical understanding of the risks of finance," he said.

"Now they’re regarded as being very big political players, bullies in their markets, and people who behave inappropriately when given the opportunity. So that’s how they’re seen today, which is quite different."

But it's not clear whether that will produce better banking policy, Johnson said.

As for the Fed's stress test, John Corston, a director in Deloitte's regulatory group, told Reuters. "While capital is certainly better than it has been in past years, these firms certainly are subject to drops in capital and earnings when subject to severe stress."

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While 29 of 30 big U.S. banks passed the Federal Reserve's annual stress test, the banking industry needs to see more change, says Simon Johnson, former chief economist of the IMF and now an MIT professor.
Simon Johnson,bank,reform,MIT
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2014-09-24
Monday, 24 March 2014 08:09 AM
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