The global financial system is still "overly complex" and the basic financial structures that were identified as "problematic" before the crisis still exist, the International Monetary Fund said in its latest Financial Stability Report.
Speaking after releasing the report, Laura Kodres, an Assistant Director in the Monetary and Capital Markets Department, said financial system are still overly complex, banking assets are highly concentrated with strong domestic interlinkages, and the too-important-to fail issues are unresolved.
"We cannot definitely say financial systems are safer" than four years ago, the official said. Most of the banking sector reforms have yet to effect a safer set of financial structures.
This is partly because in some economies and regions, the intervention measures which are needed to deal with the prolonged crisis are delaying a "reboot" of the system onto a safer path.
The report found that the global financial systems remain vulnerable. In the absence of appropriate policies, highly integrated economies are still susceptible to harmful cross-border spillovers, the fund warned.
The report identified three areas where reforms need to be taken up at a faster pace. These were addressing the issue of too-important-to-fail institutions, monitoring the non-banking or shadow banking activities, and ensuring that globalization continues in a safe and sound manner.
The analysis suggests that financial flows are still relatively healthy globally. There are some retraction in parts of Europe as the distress there takes its toll. Australia, Canada, India, and Malaysia have a relatively low degree of exposure to international banking and also avoided the worst of the effects of the global financial crisis, the report noted.
The IMF analysis indicated that policymakers may face a trade-off between the safety of financial systems and economic growth. "Any measures to enhance growth and stability will only be effective if they are implemented correctly and overseen intensively," the report added.
It also noted that high-quality regulation and supervision should be at the forefront of reform efforts.
by RTT Staff Writer
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