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Friday, 3 April, 2009

2008 Crash: Causes and Lessons for Future Polices
Lord Adair Turner Returns to Cass

An audience of academics, City practitioners and Cass students were in attendance for a keynote address from Lord Adair Turner, Head of the FSA and visiting Professor at Cass, which outlined six theoretical issues relating to the regulation of the banks and markets.

The event came on the same day Lord Turner had published his comprehensive review of global banking regulation so the event at Cass was especially propitious. Lord Turner forewarned the audience that he would deliver something of an academic seminar, which would define the fundamental underlying issues that have caused the current crisis.

During an hour long speech Lord Turner examined securitised credit, risk measurement, the failure of market discipline, financial innovation and finally, optimal bank capital.

Effective Monetary Policy in a Low Interest Rate Environment - James Bullard delivers the Henry Thornton lecture 2009

Another recent visitor to Cass was James Bullard, President of the Federal Reserve Bank of St. Louis. Mr Bullard discussed his vision for a shift in approach to banking similar to the one brought to the world by Paul Vocker in 1979. Mr Bullard argued that a shift was necessary The era of interest rate rules is in abeyance, at least for now, he said.

Mr Bullard called for careful consideration of the type of regulation brought in as a result of the crisis, and an end to the perception that government would guarantee the liabilities of large financial institutions, as with Fannie Mae and Freddie Mac. This too-big-to-fail’ culture had allowed Freddie and Fannie to borrow heavily in debt markets at low interest rates, with a much lower capital ratio than other financial firms and this, argued Mr Bullard, must be dealt with Any new regulation has to be soberly designed with this [too-big-too-fail culture’] in mind. It is not sufficient for policy makers to simply announce that they will get tough next time.’

In conclusion Mr Bullard re-asserted his belief that there must be shift away from interest rate rules and toward quantitative approaches, which will only be effective if the lessons of the last two decades are taken into consideration We need a clearly articulated, credible policy that stretches out for several years and indicates how the central bank plans to respond to future macroeconomic events.

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Left to Right: Cass's Deputy Dean, Professor Steve Haberman and Lord Adair Turner

James Bullard, President of the Federal Reserve Board of St. Louis

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