A key issue in the fight against global financial contagion is that central banks don’t know how to step in, says David Kriegman, a professor at the University of Toronto’s Rotman School of Management.
Central banks aren’t expected to step up when they think they can, he said.
They’re not prepared to take over when they’re afraid they won’t get the help they need.
That’s a big problem.
So central banks are afraid to do anything, which makes them vulnerable to the kind of financial turmoil that could befall their countries, including countries that have very strong economies, such as Greece, and those that have a lot of credit growth, such like Japan and Germany.
Central bank officials are particularly afraid of the possibility of contagion from a global banking crisis, Kriegmann said.
They want to be prepared to deal with a global economic crisis.
But they’re not thinking of what they might have to do when that happens.
That’s a real problem. Read more