Big banks are no safer now than they were before the financial crisis, according to a new analysis by a Harvard duo that includes former White House economic advisor Larry Summers.
Not only does the paper assert that the possibility of a too-big-to-fail scenario still looms, but they also said the increased regulatory environment actually has played a part in keeping the system endangered.
“We find that a substantial part of the reason banks have become riskier and effectively more leveraged is a decline in their franchise value,” the researchers wrote in a white paper for the Brookings Institution. They added that “it appears plausible that a large part of the reason for declines in franchise value is regulatory activity and the prospect of future regulation.”
In essence, the paper argues that the regulatory pressure through Dodd-Frank and other measures has made banks a tougher investment.
The paper is co-authored by Natasha Sarin and was scheduled for presentation at a conference Thursday, which happens to be the eighth anniversary of Lehman Brothers’ bankruptcy filing, a crucial moment in the crisis. Summers has served under multiple presidents and headed the National Economic Council for President Barack Obama.
