The Economic Crisis: Did Financial Supervision Matter?

The Asian financial crisis marked the beginning of worldwide efforts to improve the effectiveness of financial supervision. However, the crisis that started in 2007–08 was a crude awakening: several of these improvements seemed unable to avoid or mitigate the crisis.

This paper brings the first systematic analysis of the role of two of these efforts - modifications in the architecture of financial supervision and in supervisory governance - and concludes that they were negatively correlated with economic resilience.

Using the emerging distinction between macro- and micro-prudential supervision, we explore to what extent two separate institutions would allow for more checks and balances to improve supervisory governance and, thus, reduce the probability of supervisory failure.

Author/Editor: Masciandaro, Donato ; Vega Pansini, Rosaria ; Quintyn, Marc
Authorized for Distribution: November 01, 2011. Series: Working Paper No. 11/261
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
The Economic Crisis: Did Financial Supervision Matter?

The Cannes Action Plan for Growth and Jobs

The world’s major economies pledge to coordinate efforts to restore growth, increase employment and regulate financial markets. The G20 countries agreed on a package of measures to restore global growth at their meeting in Cannes, France, on 3 and 4 November (The Cannes Action Plan for Growth and Jobs)  .

Many measures, including commitments to balance budgets and improve domestic economies, were proposed by the EU. In line with such efforts, the G20 welcomed the eurozone's plan to resolve the debt crisis affecting some members. G20 countries will also increase efforts to reduce long-term unemployment and the effects of globalisation on workers.

Increasing international trade is key to restoring growth and creating jobs. G20 leaders urged more cooperation on reducing trade barriers and avoiding protectionism. They want a stronger role for the World Trade Organisation in settling disputes between countries.

They also called on some countries to stop setting their currency exchange rates at unfairly low levels to increase exports.

Crisis prevention

Financial market reform and investor protection were also high on the agenda. Priorities include better regulation of derivatives trading and reducing the risk of bank failures.

Large institutions with significant roles in the global financial system will be subject to increased supervision. G20 countries propose regulating banking-style activities carried out by investment companies, insurers and others.

As part of the effort to reduce systemic risk to the global economy, G20 countries are prepared to give additional resources to the International Monetary Fund (IMF). New funding programmes would be used to better support countries in economic difficulty.

Poverty reduction

G20 leaders called on governments to follow through on their commitments on development aid, food security and climate change. They agreed that, over time, new sources of funding need to be found to help developing countries.

One such source could be a global financial transaction tax, proposed by the Commission and supported by France, host of the G20 meeting.

Other measures would provide more funds for agricultural research and stabilise food prices, especially for low income countries.

More on the EU positions at the G20

More on the G20

Related Links

• EU priorities at the G20 summit
• Setting global goals at the G8 summit

The Cannes Action Plan for Growth and Jobs