FSB framework for 'next Lehman' fails acid test

Washington, DC

AT LEAST since the fall of 2008, leading economies' officials have agreed - in principle - that something must be done about financial firms that are "too big to fail". Great efforts, including countless international meetings, working papers, and communiqués have been devoted to this end. The Basel-based Financial Stability Board (FSB) recently announced, to some fanfare, the completion of a major stage in this project. But the announcement only served to underscore how little progress has been made. The world's largest banks remain too big to fail, and this is likely to have dire consequences in the near future.

The problem of too big to fail is not new - the phrase was first used in the United States in the 1980s. It refers to any firm - usually in the financial sector - whose failure would have major negative spillover effects for the rest of the financial system and for the real (non-financial) part of the economy.