There are any number of prescriptions for the problem of
institutions that are too big to fail. Some aim to make them
smaller by prescribing legal limitations on their activities.
This measure has its supporters in the US. Another is to reduce
the size of institutions through increased capital requirements
for select business lines or the taxation of lines or products.
This has its proponents in Britain. Other measures aim at
making the institutions less likely to fail, by increasing
liquidity and the quality and quantity of capital. This is the
measure seemingly favoured by the Basel Committee in its
In Australia, the Australian Prudential Regulation Authority
has published proposals on liquidity. It is yet to publish
detailed proposals on capital but has advised institutions to
be mindful of the Basel Committee proposals.
Measures of the kind favoured by the Basel Committee are
perhaps the most likely to...