TAILIEUCHUNG - The Current Financial Crisis: Causes and Policy Issues

In the context of the 100% CCF for calculating the leverage ratio, Basel III applies a 10% CCF to commitments that are unconditionally cancellable and it also has been argued that such an exception could also be made for trade finance commitments. However, the 10% CCF treatment will only be made for commitments that are unconditionally cancellable at any time by the bank without prior notice. Those commitments are significantly different from contingent trade finance products which are binding commitments for the respective bank, ie they are irrevocable and cannot be cancelled without prior agreement of the beneficiary. Undrawn unconditionally. | ISSN 1995-2864 Financial Market Trends OECD 2008 The Current Financial Crisis Causes and Policy Issues Adrian Blundell-Wignall Paul Atkinson and Se Hoon Lee This article treats some ideas and issues that are part of ongoing reflection at the OECD. They were first raised in a major research article for the Reserve Bank of Australia conference in July 2008 and benefited from policy discussion in and around that conference. One fundamental cause of the crisis was a change in the business model of banking mixing credit with equity culture. When this model was combined with complex interactions from incentives emanating from macro policies changes in regulations taxation and corporate governance the current crisis became the inevitable result. The paper points to the need for far-reaching reform for a more sustainable situation in the future. Adrian Blundell-Wignall is Deputy Director of the OECD Directorate for Financial and Enterprise Affairs Paul Atkinson is a Senior Research Fellow at Groupe dEconomie Mondiale de Sciences Po Paris and Se Hoon Lee is Financial Markets Analyst in the Financial Affairs Division of the OECD Directorate for Financial and Enterprise Affairs. The views in the paper arise from research presented to a non-OECD conference and the discussion it generated. While this research was circulated to the OECD Committee on Financial Markets the views are those of the authors and do not necessarily reflect those of the OECD or the governments of its Member countries. FINANCIAL MARKET TRENDS - ISSN 1995-2864 - OECD 2008 1 THE CURRENT FINANCIAL CRISIS CAUSES AND POLICY ISSUES Current financial crisis caused by global macro liquidity policies and by a poor regulatory framework The crisis originated from the distortions and incentives created by past policy actions RMBS were in the vortex of the crisis I. Origins and causes of the crisis1 At the recent Reserve Bank of Australia conference on the current financial turmoil the paper by Adrian Blundell-Wignall

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