Chart of the Week: Financial Reform Report Card

IMF Blog, October 29, 2018

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Authors: Tobias Adrian, Dirk Jan Grolleman, Anastasiia Morozova
Published: October 29, 2018

Summary and context

Publication date: October 29, 2018.
Authors: Tobias Adrian, Dirk Jan Grolleman, Anastasiia Morozova.
Context: Ten-year retrospective on the global financial crisis (the 10th anniversary of the 2008 collapse of Lehman Brothers) assessing progress in banking sector regulation and supervision.
High-level finding: The financial system is safer than in 2008 with improvements in capital, liquidity, and banking sector leverage, but important weaknesses remain and policymakers should not be complacent.

Methodology and scope

Assessment period: 2013 to 2017.
Comparison periods shown: average compliance from 2013 to the first half 2014 versus average compliance from the second half of 2014 to 2017. The two periods encompass roughly equal numbers of assessments.
Coverage: average compliance levels over time for 37 nations.
Benchmark: 29 Core Principles for Effective Banking Supervision established by the Basel Committee for Banking Supervision.
Data source: Compliance assessments drawn from the Financial Stability Assessment Program, conducted jointly by the Fund and the World Bank.
Coverage note: More than three-quarters of the Fund’s 189 members have undergone assessments.

Key findings — areas of progress

Improvements observed in:
- Capital
- Liquidity
- Banking sector leverage

Key findings — persistent weaknesses

Two of the most problematic areas across the financial sector:
- Corporate governance (pre-crisis weak governance led to risky exposures and flawed incentives).
- Regulatory oversight (many supervisors still lack independence, accountability, resources, and legal protections).
Other recurring areas of low compliance:
- Transactions with related parties (shareholders, subsidiaries, other group companies).
- Operational risk, including breakdowns in internal procedures and systems and defenses against cyber risk.
- Abuse of financial services (ensuring banks are not used for money laundering or other criminal activities).
- Supervisory approach (developing forward-looking risk assessment and effective early intervention and resolution).
- Risk management process (identify, evaluate, monitor, and control risks).

Implications and recommendations

Main implication: While global regulatory reform progress has been impressive, significant vulnerabilities persist and more work is needed to ensure financial system stability.
Policy priorities implied by the assessment:
- Strengthen corporate governance frameworks to reduce incentive-driven risky behavior.
- Enhance supervisory independence, accountability, resources, and legal protections.
- Improve oversight and controls on related-party transactions.
- Bolster operational risk management, including cyber defenses.
- Intensify efforts to prevent abuse of financial services (anti–money laundering and criminal-finance controls).
- Develop and implement forward-looking supervisory approaches and effective early intervention and resolution frameworks.
- Upgrade risk management processes to better identify, evaluate, monitor, and control risks.

Takeaway

The chart-level evidence across 37 nations and 29 Basel Core Principles indicates meaningful reform progress since 2008, but persistent shortfalls in governance and regulatory oversight, among other areas, mean "this is no time for complacency."

Source: IMF Blog — Chart of the Week: Financial Reform Report Card (October 29, 2018), authors Tobias Adrian, Dirk Jan Grolleman, Anastasiia Morozova.

Chart of the Week: Financial Reform Report Card

Source details

Other formats

Bibliographic details

Summary and context

Methodology and scope

Key findings — areas of progress

Key findings — persistent weaknesses

Implications and recommendations

Takeaway

References