Lessons from the Recent Financial Crisis for Reforming National and International Financial Systems

The recent financial crisis is due to a confluence of well-known causes with some new factors. It has brought to light many weak elements in national financial architectures, particularly in the treatment of systemic banks and other financial institutions; the assessments of risks and vulnerabilities; and the resolution of financial institutions and claims. The global nature of the financial crisis has made clear that financially integrated markets have benefits, but also risks, with large real economic consequences. It has shown that the international financial architecture is still far from institutionally matching the closely-integrated financial systems. The crisis has had major financial and economic repercussions for emerging markets and developing countries. Countries are benefiting from their improved fundamentals to tackle the crisis. Short-term policy responses, involving more accommodative fiscal and monetary policy and better restructuring frameworks, are being put in place. But the crisis also highlights some specific financial sector reform challenges for emerging markets and developing countries.