The failure of SIFIs could set off a global financial disaster (Credit: istock photo, BrianAJackson)
The Global Financial System can’t stand another systemic shock. Even as efforts are rallying to accelerate the recuperation of global financial systems, regulators should remain vigilant for possible deterioration. Restoring financial stability through recovery plans and extended interventions using public funds mandates closer monitoring of the financial markets as well as additional measures to minimize the likelihood and severity of potential outcomes if systemically important financial institutions (SIFIs) were to fail.
global financial crisis
Will any government be brave enough to let a big bank fail? (Credit: Ian Kennedy, Flickr Creative Commons)
Five frightening years after the meltdown of the global financial system – with the world’s advanced economies stuck in a painful slump – policymakers are still struggling to reinvigorate job growth. If the unemployed were awaiting some tangible initiative from this summer’s G8 summit, they were surely disappointed: Last week’s G8 summit communiqué offered only boilerplate assertions that “decisive action is needed to nurture a sustainable recovery and restore the resilience of the global economy.”
The financial fiasco of 2008 left human wreckage in its wake. An additional 120 million people worldwide were plunged into poverty at the nadir of the crisis, wiping out years of development progress. According to the World Bank's most recent World Development Report, there are now about 200 million unemployed worldwide; 1.5 billion only marginally employed in tenuous jobs; and 2 billion dropouts from the workforce.
The financial crises has entered a new, difficult phase (Credit:©iStockphoto.com/Photomorphic)
The Thirteenth Annual Financial Sector World Bank/Federal Reserve/International Monetary Fund Seminar on Policy Challenges for the Financial Sector was held on June 5 to 7th, attracting more than 90 participants from over 60 countries. There were many distinguished speakers, including World Bank President Jim Yong Kim, IMF Managing Director Christine Lagarde and Federal Reserve Chairman Ben Bernanke. One of the highlights was a provocative lunchtime address on The Contradictions of System Stability: One Asian View by Andrew Sheng, the President of the Fung Global Institute.
The global financial crisis has reversed an expansionary trend of international activities by banks from advanced countries that had been at play for decades. From the late 1970s to 2008, banks not only found new opportunities for intermediation in increasing cross-border capital flows, but they also raised their profile in domestic credit provision abroad. We are now watching an upheaval of that landscape, its ground dramatically shifting with the unfolding of the crisis.
The global community faces an epic governance and accountability challenge: the big banks that we all use either directly or indirectly are out of control and nobody seems to know what to do about them. As we mark the fifth anniversary of the global financial crisis this month, it appears as if every new week brings news of a fresh banking scandal. The recent list:
In mid-September, the African Development Bank, the German Federal Ministry for Economic Cooperation and Development and the World Bank will launch Financing Africa: Through the Crisis and Beyond , a comprehensive review documenting current and new trends in Africa’s financial sector and taking into account Africa’s many different experiences. During the coming weeks and leading up to the formal launch of the book in Ethiopia on September 15, we will give a sneak peek of the book’s main findings and recommendations. In this first post, we’ll summarize our main messages.
The smaller economies of Bangladesh, Nepal, and Sri Lanka continue to show optimism for their economies based on good remittance inflows and export indicators that demonstrate strong growth in 2008. Policymakers have used these statistics as evidence to believe that they have been relatively unaffected by the current global downturn.
The global financial crisis hit South Asia at a time when it was barely recovering from a severe terms of trade shock resulting from the global food and fuel price crisis.The food and fuel price shocks had badly affected South Asia, with cumulative income loss ranging from 34 percent of 2002 GDP for Maldives to 8 percent for Bangladesh. Current account and fiscal balances worsened sharply and inflation surged to unprecedented levels.