If you must see a positive side to disaster, it might be said that the Japanese tsunami of March 2011 has given town planners the chance to design and build fabulous, energy efficient, new towns and homes, fit to meet the needs of Japanese citizens in the 21st century and better withstand the ravages of nature. In a way, the global financial crisis has afforded such a chance to governments and regulators to redesign the banking system. Over the years, the global financial system has developed customs and practices which cause alarm when scrutinised by those outside the hallowed halls of high finance. Amidst the chaos and destruction of the global financial crisis, calls are coming from many corners for significant reform. The latest such voice is that of the IMF.
The IMF believes that despite moves in Europe to calm the sovereign debt crisis that it remains the main cause of concern at the moment and that risks to global financial stability have risen over the past six months. They believe that little real progress has been made in making the system more transparent and simpler and that confidence in it remains “very fragile”.
The latest IMF biannual Global Financial Stability report notes that efforts by European leaders had “allayed investors' biggest fears”, but points out the danger of a capital flight out of Europe because of continuing fears that one or more Eurozone members may be forced out of the bloc. Such a situation could “undermined the very foundation of the union”, according to the IMF.
On the subject of banking transparency and systems simplification, the report notes: “Although there has been some progress over the past five years, financial systems have not come much closer to those desirable features. They are still overly complex, with strong domestic inter-bank , with the too-important-to-fail issues unresolved”.
The report also highlighted the need to reduce sovereign debt (notably in Japan and the USA) without sacrificing economic growth and noted the impending “fiscal cliff” that the US is approaching where mandatory cuts and tax rises will be made unless political consensus can be reached before the end of the year.