Systemic Risk Model: Add Capital, Remove Bailout Policies

PARIS--Governments can best mitigate systemic risk by raising capital reserve requirements for financial institutions and immediately closing bankrupt institutions. Instead, they used bailout measures and delayed bank closures --policies that tend to prolong the false sense of economic security and exacerbate the inevitable shock to the market. That is the viewpoint of George Kaufman, professor of finance and economics at Chicago's Loyola University, who spoke on the issue at the recent Global