Few people expect a large bank to carry enough capital to meet every conceivable financial and operational catastrophe – except perhaps Daniel Zuberbühler, director of the Swiss Federal Banking Commission. In recognition of this, regulators and bankers are wrestling with the question of who should provide liquidity if a “too-big-to-fail” bank gets into trouble and threatens dislocation of the financial system?
The possible choices are: central banks as lenders of last resort; insurance; or mutual insurance by banks themselves.
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