IMF Staff Position Notes

Redesigning the Contours of the Future Financial System

By Laura E. Kodres, Aditya Narain

August 16, 2010

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Laura E. Kodres, and Aditya Narain. Redesigning the Contours of the Future Financial System, (USA: International Monetary Fund, 2010) accessed September 19, 2024

Summary

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.

Subject: Banking, Commercial banks, Credit, Financial institutions, Financial sector policy and analysis, Financial sector stability, Money, Nonbank financial institutions, Systemic risk

Keywords: Accounting rule, Banking sector, Banking system assets, CDS market, Commercial banks, Credit, Credit risk, Economic growth, Financial sector stability, Financial system assets, Functioning financial system, Global, IMF policy advice, Market discipline, Market practice, Nonbank financial institutions, SPN, Systemic risk

Publication Details

  • Pages:

    18

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Staff Position Note No. 2010/010

  • Stock No:

    SPNEA2010010

  • ISBN:

    9781462388882

  • ISSN:

    2617-6742