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This paper explores the private- and public-sector responses to the crisis and some of the probable outcomes. Aside from improved supervision of individual institutions, greater emphasis needs to be put on financial regulations that reflect the systemic nature of financial risks and the role that macroeconomic policies play. Global consistency of regulation and financial sector taxation will be essential to mitigate systemic risks, avoid unintended distortions, and help ensure a level playing field. This note suggests the key aspects of the future contours will likely be: ? Banks are expected to return to their more traditional function as stricter regulation will limit the risks and activities they can undertake. ? The nonbanking sector will likely have a greater competitive advantage—both in supplying credit and providing investors with nonbank services—and will thus grow. ? The perimeter of regulation will need to expand to take into account risks in the nonbank sector. ? Market infrastructure will be reinforced to protect investors and will need to provide simplicity and transparency to make risks clearer and the financial system safer. ? The global financial system is likely to be smaller and less levered than in the recent past, and could well be less innovative and dynamic, at least for a while.

Banks and Banking --- Finance: General --- Money and Monetary Policy --- Industries: Financial Services --- Financial Crises --- International Financial Markets --- General Financial Markets: Government Policy and Regulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Investment Banking --- Venture Capital --- Brokerage --- Ratings and Ratings Agencies --- Financial Institutions and Services: Government Policy and Regulation --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Banking --- Finance --- Monetary economics --- Commercial banks --- Systemic risk --- Financial sector stability --- Credit --- Financial institutions --- Financial sector policy and analysis --- Money --- Nonbank financial institutions --- Banks and banking --- Financial risk management --- Financial services industry --- United Kingdom

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We identify current challenges for creating stable, yet efficient financial systems using lessons from recent and past crises. Reforms need to start from three tenets: adopting a system-wide perspective explicitly aimed at addressing market failures; understanding and incorporating into regulations agents’ incentives so as to align them better with societies’ goals; and acknowledging that risks of crises will always remain, in part due to (unknown) unknowns – be they tipping points, fault lines, or spillovers. Corresponding to these three tenets, specific areas for further reforms are identified. Policy makers need to resist, however, fine-tuning regulations: a “do not harm” approach is often preferable. And as risks will remain, crisis management needs to be made an integral part of system design, not relegated to improvisation after the fact.

Crisis management --- Economic history --- Global Financial Crisis, 2008-2009. --- Globalization --- Global Economic Crisis, 2008-2009 --- Subprime Mortgage Crisis, 2008-2009 --- Financial crises --- Economic aspects. --- Banks and Banking --- Finance: General --- Financial Risk Management --- Taxation --- Industries: Financial Services --- Financial Crises --- General Financial Markets: General (includes Measurement and Data) --- International Financial Markets --- General Financial Markets: Government Policy and Regulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- International Finance: General --- Crisis Management --- Taxation, Subsidies, and Revenue: General --- Economic & financial crises & disasters --- Finance --- Banking --- Public finance & taxation --- Financial services law & regulation --- Shadow banking --- Tax incentives --- Financial services --- Systemic risk --- Financial sector policy and analysis --- Liquidity requirements --- Financial regulation and supervision --- Nonbank financial institutions --- Law and legislation --- Financial services industry --- Financial risk management --- Banks and banking --- State supervision --- United States

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Despite recent turmoil, spreads on emerging market countries' sovereign bonds have fallen dramatically since mid-2002. Some have attributed the fall to improved economic fundamentals while others to ample global liquidity. The paper models spreads and attempts to empirically distinguish between the two factors. The results indicate that fundamentals, as embedded in credit ratings, are very important, but that expectations of future U.S. interest rates and volatility in those expectations are also a key determinant of emerging market spreads.

Finance --- Business & Economics --- Investment & Speculation --- Bonds --- Liquidity (Economics) --- Credit ratings --- Econometric models. --- Commercial ratings --- Credit checks --- Credit guides --- Credit investigations --- Credit reports --- Ratings, Credit --- Assets, Frozen --- Frozen assets --- Bond issues --- Debentures --- Negotiable instruments --- Securities --- Debts, Public --- Stocks --- Banks and Banking --- Finance: General --- Investments: Futures --- Money and Monetary Policy --- General Financial Markets: General (includes Measurement and Data) --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Interest Rates: Determination, Term Structure, and Effects --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Monetary economics --- Emerging and frontier financial markets --- Yield curve --- Securities markets --- Futures --- Financial services industry --- Interest rates --- Capital market --- Derivative securities --- United States

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The G-20 Data Gaps Initiative has called for the IMF to develop standard measures of tail risk, which we identify in this paper with systemic risk. To understand the conditions under which tail risk is present, it is first necessary to develop a measure of what constitutes a systemic stress, or tail, event. We develop such a measure and uses it to assess the performance of eleven near-term systemic risk indicators as ‘early’ warning of distress among top financial institutions in the United States and the euro area. Two indicators perform particularly well in both regions, and a couple of other simple indicators do well across a number of criteria. We also find that the sizes of institutions do not necessarily correspond with their contribution to spillover risk. Some practical guidance for policies is provided.

Financial risk management --- Financial risk. --- Business risk (Finance) --- Money risk (Finance) --- Risk --- Risk management --- Econometric models. --- Banks and Banking --- Finance: General --- Financial Risk Management --- Macroeconomics --- Financial Crises --- Financial Forecasting and Simulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- General Financial Markets: Government Policy and Regulation --- Interest Rates: Determination, Term Structure, and Effects --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Finance --- Economic & financial crises & disasters --- Financial services law & regulation --- Banking --- Economic growth --- Systemic risk --- Yield curve --- Financial crises --- Liquidity risk --- Financial sector policy and analysis --- Financial services --- Financial regulation and supervision --- Cyclical indicators --- Interest rates --- Banks and banking --- Business cycles --- United States

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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.

Banks and Banking --- Finance: General --- Financial Risk Management --- Macroeconomics --- General Financial Markets: Government Policy and Regulation --- Financial Crises --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Financial Markets and the Macroeconomy --- Finance --- Economic & financial crises & disasters --- Banking --- Financial services law & regulation --- Financial sector stability --- Systemic risk --- Financial crises --- Bank resolution framework --- Financial sector policy and analysis --- Liquidity requirements --- Financial regulation and supervision --- Macroprudential policy --- Financial services industry --- Financial risk management --- Banks and banking --- Crisis management --- State supervision --- Economic policy --- United States