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buffers for bad times and contingent debt conversions into equity for tail risk situations are highly desirable. 6 as for liquidity, although extreme versions of null maturity mismatch between the assets and liabilities of banks have proven historically impractical, a more flexible and modern version of the debate has been led by taylor ( 2007 ) and bernanke ( 2010 ). adrian and shin ( 2009 ), eickmeier and hofmann ( 2010 ) and maddaloni and peydro ( 2010 ) provide empirical evidence of the effect of lax monetary policy on the crisis. obstfeld and rogoff ( 2009 ) consider that the possible existence of a “ savings glut ” was partly the result of the u. s. monetary policy stance, and bracke and fidora ( 2008 ) confirm empirically that the “ savings glut ” was probably a less important driver of the economic imbalances than a “ liquidity glut ”. on the contingent debt conversion proposal see squam lake working group on financial regulation ( 2009 ). simons ’ ( 1948 ) full - reserve banking for retail deposits supporting the payment system should not be excluded a priori. 7 the agreement reached by the basel committee in september 2010, known as basel iii, that established higher capital standards including two new capital buffers ( “ conservation ” and “ countercyclical ” ) to be introduced gradually, and a tier 1 leverage ratio to be analyzed further, is a step in the right direction. nevertheless, the new requirements may still prove insufficient to prevent crises, given their relatively low target values, and the inclusion of components of lesser quality than common equity in tier 1 capital. overcoming these limitations is of the utmost importance considering the poor record of the basel core principles for banking supervision in preventing financial problems in the past. 8 however, the regulatory weakness that more likely led to excessive risk taking in this crisis was the ambiguous government safety net held out to investors and institutions. this included the explicit limited guarantees on deposits but most importantly, the realized assumption that, when problems arise, the government can extend this protection to other investments and rescue financially significant institutions. in particular, the “ too big to fail ” policy is a well - known source of moral hazard that leads to the unpleasant outcome of promoting risk taking with private rewards and socially shared costs. the only solution to dealing with this problem is to abolish the policy. this would imply forgoing the bailout capacity of the