Strengthening Financial Institutions

The repeated reoccurrence of financial crises since the early 1990s has led to calls for institutional reform. The most recent example is the crisis that began with the problems on the subprime segment of the US housing market. Numerous commentators have observed that the interactions between commercial banks, other financial intermediaries, credit rating agencies, financial regulators, national banks and governments were partly responsible for the financial unrest. There is a need for better management and regulation of diverse, interrelated risks.

How can existing financial institutions be reorganized or restructured to permit improved risk management and supervision, more effective techniques of hedging and distributing financial risks, and more effective disclosure of risk exposures and financial valuation methods to the public? What is the future role of banks and financial intermediaries in risk management? Once all measures to prevent financial crises have failed, how should national authorities address stresses in troubled financial institutions and how should they deal with impaired assets in the presence of disruptive write-downs? And finally, is the current international monetary system optimal to guarantee financial stability or does it need overhaul? What exchange rate regimes and international governance structures would improve financial stability?