In the context of supervision, for all measures aimed at eliminating systemic risk in general and a bubble in particular. – One main approach is to require institutions to build up capital cushions during economic upswings, for example by building up reserves. Another much-discussed proposal is to impose risk-sensitive capital requirements and to supplement them with countercyclically fluctuating capital surcharges. In principle, stricter global capital adequacy rules can counteract excessive leverage and other very risky exposures: there is consensus on this. However, it is seen as very difficult to implement such rules because it is already difficult to determine the current state of a business cycle; in retrospect, business cycles and bubbles are very different. In addition, internationally positioned institutions would face a problem because business cycles do not necessarily propagate simultaneously or equally across different economic areas. – In general, however, it will remain impossible to rule out all kinds of exaggerations on the financial market, even if all measures were coordinated worldwide. For as soon as euphoric expectations of profit and wealth fire up and inspire investors, nothing and no one can stop them from entering into such commitments. – See equity bubble, contagion effects, supervision, macroprudential, oversight, global, Financial Stability Board, bank, systemic, bubble, speculative, carry trades, cleaning up after, dotcom bubble, European Systemic Risk Council, event risk, financial market collapse, synchronization problem, Jackson Hole consensus, crisis, systemic, steering tax, rebbes, solvency supervision, too big to fail principle, corporate finance.
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/