How to restructure the international financial architecture

Sibert, Anne (2009) How to restructure the international financial architecture. Other. European Parliament, Brussels.

Abstract

To lower the likelihood of financial crises: Securitisation should be regulated to restore proper incentives for banks. The euro area should adopt a regulatory system based on objectives. The short-comings of the Basel II accord should be addressed. While difficult, ways must be found to incentivise financial firms to change the way they compensate employees. The euro area should have a single supervisor and regulator charged with ensuring financial stability. To prevent liquidity crises: There should be good systems of deposit insurance. Countries without important reserve currencies should not have large internationally exposed banking systems. To decrease the likelihood of exchange rate crises, the powers in Brussels and Frankfurt should allow potential future members of the euro area to unilaterally adopt the euro without jeopardising their chances of future membership in the euro area. should not enforce the exchange rate criterion of the Maastricht Treaty. Early warning of a financial crisis is unlikely to be best provided by the IMF might be provided by an independent committee of experts and individual market participants International cooperation in developing crisis management measures and disseminating this knowledge is desirable; funding these measures must be left to the national governments. Managing a crisis Requires writing off bad assets: Central banks should learn how use auctions to value non-traded securities. Requires short-term liquidity provision to and recapitalisation of viable financial firms: Countries should not have banking sectors that are to big to rescue. International coordination to avoid beggar-thy-neighbour regulatory anpolicies and exchange rate policies.

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