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By Alfredo Sáenz
Published: October 19 2010 22:18 | Last updated: October 19 2010 22:18
The architects of coming global financial reforms must soon decide how best to identify, measure and curb systemic risk in the banking system. Their initial reflex was to propose the break-up of banks that were seen as "too big to fail". The shortcomings of this approach quickly became apparent, so the focus is now on a surcharge in the form of higher capital requirements, levied on those institutions deemed to be systemically significant. But this focus is too narrow.
The Basel Committee on Banking Supervision said on Tuesday that it will make systemic risk one of its main priorities in the coming months. As it does, it should consider introducing a wider set of incentives to ensure all banks improve their resilience and financial stability.
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