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. Continue reading
Filed under: Financial Crisis, Financial regulation, 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 April 22, 2010 by iMFdirect
By Reza Moghadam
Let’s rewind the tape to October 2008. Barely a couple of weeks have passed since Lehman filed for bankruptcy, and emerging markets are selling off like crazy. The vaunted “decoupling” theories—hailed as visionary only a few months before—lie in tatters as investors flee in droves. With its mandate to foster global economic stability, the IMF comes under the spotlight: many observers question whether the institution has what it takes to stop contagion and help emerging markets cope with global deleveraging.
With strong support from its membership, the IMF did not hesitate to come to the rescue. It provided large and upfront financial assistance to help countries weather the crisis. It overhauled its lending toolkit, notably by establishing the Flexible Credit Line (an instrument allowing countries with very strong policies to tap IMF resources unconditionally). And, importantly, its membership, building on the political momentum of the G-20, committed to tripling its resource base. These actions helped put out the fire, setting emerging market spreads on a downward trajectory.
Filed under: Economic Crisis, Economic research, Financial Crisis, Financial regulation, International Monetary Fund | Tagged: capital flows, central bank swap lines, contagion, countercyclical lending, Decoupling, deleveraging, emerging market spreads, Flexible Credit Line, moral hazard, reserves, systemic shocks | 1 Comment »