Therefore, in his view, a one-size-fits-all rule, in the form of a uniform debt ceiling, should coexist with the current risk-weighting rules. I think this approach makes sense: where there is a threat of major losses that could bring the financial markets even to the brink of meltdown, there is justification – or even a need – for installing multiple security systems.
What’s needed for nuclear reactors, for instance, does not seem like a bad idea for the financial system, either. It is also important, though, that these security systems cannot be circumvented by moving assets to less regulated areas such as the shadow banking sector. Much remains to be done in this regard, starting with the enforcement of extensive reporting requirements.