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Summers Surprised That Markets See Just as Much Risk in Banks 

September 15, 2016

Christopher Condon, Bloomberg

Stricter U.S. regulation since the financial crisis has failed to make banks significantly safer in the eyes of investors, and may even have made them more vulnerable to failure, according to a new paper co-authored by Lawrence Summers.

Summers, who served as President Barack Obama’s National Economic Council director during the passage of the Dodd-Frank overhaul of U.S. financial regulations, found measures of stability related to bank security prices don’t reveal an expected drop in risk. The paper, written with Summers’ Harvard University colleague, Natasha Sarin, is scheduled to be presented Thursday at a conference hosted by the Brookings Institution in Washington.

“To our surprise, we find that financial market information provides little support for the view that major institutions are significantly safer than they were before the crisis and some support for the notion that risks have actually increased,” the pair wrote, adding that “further regulatory actions could actually increase systemic risk.”

The Summers paper comes amid continued debate over the impact of the 2010 Dodd-Frank Act and other regulations imposed since the financial crisis. Read more

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