It would be unfair for any assessment of global economic and financial stability not to acknowledge the tremendous progress has been made in repairing and strengthening the financial system since the onset of the global crisis. Still, the key message from the IMF’s October 2010 Global Financial Stability Report is clear. Progress toward global financial stability has suffered a setback over the past six months—the financial system remains the Achilles’ heel of the economic recovery. In this blog post, José Viñals discusses two broad issues. What is at the heart of this lingering lack of confidence? And, looking ahead, what are the policy priorities?
The crisis exposed fundamental weaknesses in many areas of the world economy, the most obvious being dramatic deficiencies in the regulation and supervision-nationally and internationally-of financial institutions and markets. On the bright side, the crisis provided the impetus for a major overhaul of the financial regulatory system. So, are we making the most of this opportunity to fix the system? A new Staff Position Note, Shaping the New Financial System, examines just how far we’ve come and, more importantly, how much further we have to go. The good news is that policymakers have made important progress in some areas, and the work underway is moving in the right direction. The bad news is that we are barely half way there and the hardest part may lie ahead. Indeed, unless there is concrete progress over the next 12 months in a few key areas, we may well sow the seeds of the next financial crisis.