Shaping the New Financial System

by Marina Moretti, Aditya Narain, Laura E. Kodres

Three years after the onset of the global financial crisis, much has been done to reform the global financial system, but there is much left to accomplish. The regulatory reform agenda agreed by G-20 leaders in 2009 has elevated the discussions to the highest policy level and kept international attention focused on establishing a globally consistent set of rules. Comprehensive reform, once agreed and implemented in full, will have far-reaching implications for the global financial system and the performance of the world economy. In designing the reforms, it is imperative that policymakers keep their focus on the overarching objective of creating a financial system that provides a solid foundation for strong and sustainable economic growth. This paper argues that the current reforms are moving in the right direction, but many policy choices lie ahead—nationally and internationally?which are both urgent and challenging. Policies need to address not only the risks posed by individual banks but also, importantly, those posed by nonbanks and the system as a whole. The recent proposals of the Basel Committee on Banking Supervision (BCBS) represent a substantial improvement in the quality and quantity of bank capital, but these apply only to a subset of the financial system.

40 pages, Kindle Edition

Published October 1, 2010

About the author

Marina Moretti heads the Financial Crisis Preparedness and Management Division in the Monetary and Capital Markets Department of the International Monetary Fund. Since joining the IMF in 1999, she has focused on crisis management and regulatory policy issues, and led Financial Sector Assessment Program missions in several countries. She was a member of the Financial Stability Board secretariat between 2008 and 2010.