Author: James Smalhout Bankers have been living dangerously since the early 1980s’ debt crisis. Poor practice and inadequate regulation appear to be behind several episodes of bad debts. Senior managers haven’t always had the right incentives. They enjoy most of the upside when risky bets pay off, but government guarantees shield them when gambling for redemption fails. And clumsy capital adequacy rules from the Basel Committee haven’t always protected taxpayers from the costs. The Shadow Financial Regulatory Committee in the US reckons that the mandatory issuance of subordinated debt by banks could solve many of these problems.
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