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Too early to tell.
In recent weeks, policymakers on both sides of the Atlantic have affirmed that the financial system is sound and stable. The U.S. Federal Reserve announced in June that all U.S. banks passed its latest annual stress test. And Fed Chair Janet Yellen has now suggested that we might not experience another financial crisis "in our lifetimes."
At the same time, the Financial Stability Board-which monitors regulatory practices around the world to ensure that they meet globally agreed standards-has declared, in a letter to G-20 leaders, that "toxic forms of shadow banking" are being eliminated.
In short, ongoing measures to buttress the global financial system have undoubtedly paid off, especially when it comes to strengthening capital cushions and cleaning up balance sheets in important parts of the banking system. The latest assurances from policymakers are comforting to those of us who worry that not enough has been done to reduce systemic financial risk and to ensure that banks serve the real economy, rather than threaten its wellbeing.
Yet it is too soon to give the financial system as a whole a clean bill of health. Efforts to shore up the banking sector in some parts of Europe are still lagging far behind. And, more important, financial risks have...