Posted on May 27, 2011 by iMFdirect
By Aditya Narain and İnci Ötker-Robe
Folklore is riddled with tales of a lone actor undoing a titan: David and Goliath; Heracles and Atlas; Jack and the Beanstalk, to name a few.
Financial institutions seen as too important to fail have become even larger and more complex since the global crisis. We need look no further than the example of investment bank Lehman Brothers to understand how one financial institution’s failure can threaten the global financial system and create devastating effects to economies around the world. (more…)
Filed under: Financial Crisis, Financial regulation, Financial sector supervision, International Monetary Fund | Tagged: bailout, Basel III, capital requirements, crisis prevention, financial disclosure, financial institutions, financial stability, financial supervision, global financial system, investment bank, market discipline, moral hazard, resolution regime, systemic collapse, systemic risk, too big to fail, too important to fail | 3 Comments »
Posted on December 1, 2009 by iMFdirect
By José Viñals
Some countries with similar financial and regulatory systems fared differently during this crisis. What are the reasons for this? And what made some financial institutions with similar business models, and in the same country, better equipped to deal with the virulence of the crisis? To find the answers, we need to ask the following question: How well did the four key components of a sound financial system―good regulation, effective supervision, robust risk management, and credible resolution mechanisms―perform?
A lot of attention has been paid to improving regulation, the first key component. Sweeping changes are being proposed through new and enhanced rules of the game, such as higher capital, loan loss provisions, liquidity buffers, and limits on executive compensation. I believe that corresponding changes are also needed in the other three components if a crisis of this magnitude is to be avoided in the future.
Filed under: Economic Crisis, Financial regulation | Tagged: Financial regulation, financial sector supervision, resolution regime, risk management, systemic risk | 1 Comment »