Keywords: financial crisis, regulation, too big to fail
The financial crisis has led to the greatest rescue operation ever. Banks, with the notable exception of Lehman Brothers, were granted the right not to fail. This can hinder market discipline, making permanent the moral hazard in the financial system. The new rules proposed by the Financial Stability Board and main regulators aim not only to lower the probability of future crises but also to establish the principle that banks can fail, as any other firm. The financial industry has seen a dramatic recovery of its profits (also thanks to the subsidies received) and is fiercely opposing the reforms, on the ground that they will reduce revenues and profits. The opposition is ill-motivated: the proposed rules will only make explicit the externalities generated by modern banks and in particular by those relevant from a systemic point of view. Regulating the riskiest part of the banking activity will inevitably end up with a reduction of the bank profits and therefore of bankers' compensation from the extraordinary levels reached before the crisis. There is a thug-of-war between regulators and Governments on the one hand and bankers on the other. The sudden return to hefty profits makes the position of the latter stronger and stronger.