In the ninth chapter of “Across the Great Divide: New Perspectives on the Financial Crisis,” Martin Baily and Douglas Elliott argue that significant progress has been made in safeguarding financial stability:
- Due to higher bank capital requirements, the FDIC can intervene before equity is wiped out.
- Liquidity requirements work in the same direction and render fire sales less likely.
- Easier resolution of distressed financial institutions helps to shield taxpayers when a bank fails.
- Better macro prudential oversight helps to manage systemic risks.
The authors discuss these dimensions in much detail.