We know there are problems in the financial system, but not how bad they are

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Financial Blog Corliss Group

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Two unconnected statements from authorities in the US and Britain in the past 24 hours should cause concern for those who worry that the global banking system has become more dangerous in the six years since the crisis, not less.

On Wednesday, the US Federal Reserve published its annual bank capital plan review that saw the North American businesses of Citigroup, HSBC, RBS and Santander all rejected for what it said were “qualitative concerns”.

This morning, the Bank of England’s Financial Policy Committee (FPC) released a statement from its latest meeting in which it warned obtusely that “changes to the structure and functioning of markets as banks adapted business models to the aftermath of the financial crisis” meant it had become more difficult to assess the impact of “unexpected developments from any source”.

What the Fed and the Bank both appear to be saying is that big banks remain too complex and that changes made to financial and bank regulation since the crash in 2008 have resulted in the job of assessing systemic risk becoming much harder.

Left unspoken to a large extent in both statements was the spectre of growing financial risks in emerging markets.

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