29 Jan 2010

Too interconnected to fail = too big to fail: What’s in a leverage ratio?

Daniel Gros

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Did allowing financial institutions to become ‘too big’ play a role in the financial crisis? This Commentary by CEPS Director Daniel Gros argues that being ‘too interconnected’ is also a factor, and that US accounting standards should recognise exposure of gross derivatives on the balance sheet to make this interconnectedness, and the resulting exposure, clear.