Front Matter

Front Matter

Author(s):
Aditya Narain, Inci Ötker, and Ceyla Pazarbasioglu
Published Date:
April 2012
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    © 2012 International Monetary Fund

    Cover design: Kenneth Grubby and Luisa Menjivar, IMF Multimedia Services Division

    Cataloging-in-Publication Data

    Joint Bank-Fund Library

    Building a more resilient financial sector: reforms in the wake of the global crisis / editors, Aditya Narain, İnci Ötker-Robe and Ceyla Pazarbasioglu. – Washington, D.C.: International Monetary Fund, 2012.

    p. ; cm.

    Includes bibliographical references and index.

    ISBN 9781616352295

    1. International finance. 2. Banks and banking – Law and legislation. 3. Financial institutions, International – Law and legislation. 4. Global Financial Crisis, 2008–2009. I. Narain, Aditya. II. Ötker, Ínci. III. Pazarbaşioğlu, Ceyla. IV. International Monetary Fund.

    HG3881.B85 2012

    Disclaimer: The views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its members.

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    Contents

    Foreword

    The chapters in this book derive from a large volume of work conducted since the onset of the global financial crisis in 2007–08. The International Monetary Fund (IMF), along with the Bank for International Settlements and the Financial Stability Board, has been closely involved in the discussions on developing the agenda for global financial sector reform and on reshaping the financial system architecture in a way that reduces the likelihood of future crises and/or limits the devastating consequences in the event they do occur. The chapters of this volume provide views on the various reform proposals and the extent to which they address the deficiencies exposed by the crisis. They support the ongoing reform process and reinforce its key priorities, while also pointing out areas of concern and challenges and urging completion of the reform agenda without further delay.

    More than four years since 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 to 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 norms. 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; the policymakers are mindful of the overarching objective of creating a financial system that provides a solid foundation for strong and sustainable economic growth.

    The current reforms are moving in the right direction, but many policy choices lie ahead that are both urgent and challenging. The choices are further complicated by the negative feedback loop that has now set in between sovereign and banking risks in an environment with weakening growth prospects. Financial stability risks have increased significantly in recent months, signaling a reversal in progress toward financial stability. This means that banks must build stronger capital and liquidity buffers to boost eroding confidence, mitigate deleveraging pressures, and sustain credit to the still weak advanced economies.

    Given the challenging environment, policymakers need to complete the financial reform agenda. This is necessary to limit the regulatory uncertainty that weighs on the real economy and to finalize the new architecture that would provide a helpful yardstick to emerging market policymakers, who need to limit a buildup of financial imbalances in their economies. In this context, ensuring a level playing field in regulation can foster competition and minimize the scope for cross-border regulatory arbitrage. Developing coherent resolution regimes at national and international levels and enhancing transparency to restore market discipline can help address the problem of institutions perceived as too important to fail. Casting a wide net to address emerging exposures and risks in the entire financial system would limit the danger that riskier activities and products could migrate to the less regulated or unregulated segments of the system and add to systemic risk. In achieving these goals, business models and practices in the private sector should be aligned with the new financial structure laid out by public policy so as to ensure effectiveness and sharing of the financial burden generated by their risk taking.

    This volume elaborates on these key elements of the financial reform agenda. Therefore, a number of other areas that are also important parts of the ongoing regulatory reform process (e.g., macroprudential policy frameworks and market microstructure and accounting measures) are not covered in this volume. I would like to extend my thanks to all those responsible for the creation of this volume and hope that it provides a valuable resource for policymakers, academics, and private sector participants who are interested in IMF staff perspectives on key financial reform issues.

    José Viñals

    Financial Counsellor and Director

    Monetary and Capital Markets Department

    International Monetary Fund

    Acknowledgments

    We are grateful to many colleagues in the Monetary and Capital Markets Department (MCM) and other departments of the International Monetary Fund (IMF) for working with us on the range of issues associated with reforming the financial system that have formed this volume. The papers that form the chapters of this volume are the result of collaboration with, and comments from, many colleagues at the IMF and helpful discussions at the IMF’s Executive Board, as well as comments and suggestions from a range of national and international policymakers, including the Bank for International Settlements, Basel Committee on Banking Supervision, and the Financial Stability Board.

    The chapters in this volume have benefited greatly from the support and guidance of José Viñals, Financial Counsellor and Director of MCM, and Jonathan Fiechter and Christopher Towe, both Deputy Directors of MCM, who have also made valuable contributions to the volume. John Lipsky, the former First Deputy Managing Director of the IMF, provided invaluable insights and comments for many of the papers that were discussed at the IMF’s Executive Board.

    The volume has benefited from the excellent editorial work and support of Sean Culhane, Deputy Division Chief, External Relations Department, who also coordinated the arrangements for publication. Finally, we acknowledge the excellent assistance of Sandra Morales-Bermudez, MCM, in producing this volume, as well as Charmane Ahmed, Magally Bernal, Heidi Canelas, and Florence Dotsey (all in MCM) for their assistance in the production of individual chapters of the volume.

    Abbreviations

    ABSs

    asset-backed securities

    BCBS

    Basel Committee on Banking Supervision

    BHCs

    bank holding companies

    BIS

    Bank for International Settlements

    CBRG

    Cross-Border Bank Resolution Group

    CCPs

    central counterparties

    CDS

    credit default swap

    CESE

    Central, Eastern, and Southern Europe

    CET1

    common equity Tier 1

    CGFS

    Committee on the Global Financial System

    CoCo

    contingent convertible capital

    CP

    core principle

    DTAs

    deferred tax assets

    EU

    European Union

    FDIC

    Federal Deposit Insurance Corporation

    FINMA

    Swiss Financial Market Supervisory Authority

    FSA

    U.K. Financial Supervisory Authority

    FSAP

    Financial Sector Assessment Program

    FSB

    Financial Stability Board

    G-20

    Group of Twenty

    G-30

    Group of Thirty

    GDP

    gross domestic product

    GFSR

    Global Financial Stability Report (of the IMF)

    G-SIBs

    global systemically important banks

    G-SIFIs

    global systemically important financial institutions

    LCFIs

    large and complex financial institutions

    LCR

    liquidity coverage ratio

    MSRs

    mortgage servicing rights

    NPLs

    nonperforming loans

    NSFR

    net stable funding ratio

    OTC

    over-the-counter

    RRPs

    recovery and resolution plans

    RWA

    risk-weighted asset

    SAS

    stand-alone subsidiarization

    SIFI

    systemically important financial institutions

    SPN

    Staff Position Note

    TITF

    too important to fail

    UNCITRAL

    United Nations Commission on International Trade Law

    Contributors

    Pierluigi Bologna, Technical Assistance Advisor, Financial Sector Oversight Division, Monetary and Capital Markets Department, International Monetary Fund

    Alberto Buffa di Perrero, Senior Financial Sector Expert, Financial Sector Analysis Division, Monetary and Capital Markets Department, International Monetary Fund

    Ana Carvajal, Senior Financial Sector Expert, Financial Sector Oversight Division, Monetary and Capital Markets Department, International Monetary Fund

    Julian T.S. Chow, Financial Sector Expert, Financial Sector Analysis Division, Monetary and Capital Markets Department, International Monetary Fund

    Marc Dobler, Senior Financial Sector Expert, Monetary and Capital Markets Department, International Monetary Fund

    Randall Dodd, Director, Financial Policy Forum

    Jennifer Elliott, Senior Financial Sector Expert, Europe, Central Asia and Middle East Division, Monetary and Capital Markets Department, International Monetary Fund

    Jonathan Fiechter, Deputy Director, Monetary and Capital Markets Department, International Monetary Fund

    Michael Hsu, Manager, Banking Supervision and Regulation, Federal Reserve Board of Governors

    Anna Ilyina, Deputy Division Chief, Financial Sector Analysis Division, Monetary and Capital Markets Department, International Monetary Fund

    Silvia Iorgova, Economist, Global Financial Stability Division, Monetary and Capital Markets Department, International Monetary Fund

    Turgut Kişinbay, Economist, Financial Sector Analysis Division, Monetary and Capital Markets Department, International Monetary Fund

    Laura Kodres, Assistant Director, Global Financial Stability Division, Monetary and Capital Markets Department, International Monetary Fund

    Ross Leckow, Deputy General Counsel, Legal Department, International Monetary Fund

    Vanessa Le Leslé, Financial Sector Expert, Financial Sector Analysis Division, Monetary and Capital Markets Department, International Monetary Fund

    Fabiana Melo, Technical Assistance Advisor, Financial Sector Oversight Division, Monetary and Capital Markets Department, International Monetary Fund

    Michael Moore, Deputy Division Chief, Financial Sector Oversight Division, Monetary and Capital Markets Department, International Monetary Fund

    Marina Moretti, Advisor, Monetary and Capital Markets Department, International Monetary Fund

    Aditya Narain, Division Chief, Financial Sector Analysis Division, Monetary and Capital Markets Department, International Monetary Fund

    Erlend Nier, Senior Financial Sector Expert, Central Banking Fund Monetary Policy Division, Monetary and Capital Markets Department, International Monetary Fund

    İnci Ötker-Robe, Advisor, Monetary and Capital Markets Department, International Monetary Fund; currently the Chief Technical Financial Sector Specialist, Finance and Private Sector Development, the World Bank

    Ceyla Pazarbasioglu, Assistant Director, Financial Sector Oversight Division, Monetary and Capital Markets Department, International Monetary Fund

    Jiri Podpiera, Economist, Western Hemisphere Department, International Monetary Fund

    Noel Sacasa, Senior Financial Sector Expert, Financial Sector Oversight Division, Monetary and Capital Markets Department, International Monetary Fund

    André Santos, Senior Economist, Financial Sector Analysis Division, Monetary and Capital Markets Department, International Monetary Fund

    Katherine Seal, Senior Financial Sector Expert, Financial Sector Oversight Division, Monetary and Capital Markets Department, International Monetary Fund

    Jay Surti, Senior Economist, Financial Sector Analysis Division, Monetary and Capital Markets Department, International Monetary Fund

    Ian Tower, U.K. Financial Services Authority

    Volodymyr Tulin, Economist, Financial Sector Analysis Division, Monetary and Capital Markets Department, International Monetary fund

    José Viñals, Financial Counsellor and Director, Monetary and Capital Markets Department, International Monetary Fund

    Luisa Zanforlin, Senior Economist, Financial Sector Oversight Division, Monetary and Capital Markets Department, International Monetary Fund

    Jianping Zhou, Senior Economist, Financial Sector Oversight Division, Monetary and Capital Markets Department, International Monetary Fund

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