Almost five years after the onset of the global financial crisis, much has been done to reform the global financial system, but much is still left to accomplish. Comprehensive reform, once agreed to and implemented in full, will have far-reaching implications for the global financial system and the world economy. In a new book, Building a More Resilient Financial Sector, edited by Aditya Narain, Ceyla Pazarbasioglu, and myself, we summarize our views on various reform proposals discussed since 2008, ranging from various regulatory reforms to supervision, too-important-to-fail (TITF) proposals, restricting banks’ size and scope, resolution, and to living wills.
The International Monetary Fund (IMF), alongside the Bank for International Settlements and Financial Stability Board, has been at the forefront of discussions on shaping the new financial system to reduce the possibility of future crises and limit the consequences if they occur. Current reforms are moving in the right direction towards building a more resilient financial system capable of supporting sustainable economic growth, but many policy choices—both urgent and challenging—still lie ahead. Progress has been made in some areas, including in reforming capital (including for systemically important financial institutions—SIFIs), recognizing the importance of a wider regulatory perimeter to oversee shadow banks, improving supervision, disclosure, and resolution regimes, and addressing incentives for risk-taking. Policymakers put forward some novel ideas, such as living wills and contingent capital (CoCos). But they lagged in implementation in many areas, while disagreeing over others.