Calling for continued global cooperation, Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), said Asia was leading the world recovery after the recession, but fixing the fragilities of the international financial system remained a top priority.
How to prevent another systemic breakdown—when financial sector problems can spread rapidly and infect the real economy and jobs—was the topic of a high-level conference in Shanghai on October 18. Senior central bank officials from Asia, Europe, North and South America, and Africa came together in Shanghai to debate the issue.
The conference on “Macro-Prudential Policies: Asian Perspectives” was sponsored by the IMF and hosted by the People’s Bank of China (PBC). Lead speakers included the Governor of the People’s Bank of China, Zhou Xiaochuan, IMF Managing Director Strauss-Kahn, IMF First Deputy Managing Director John Lipsky, and PBC Deputy Governor Yi Gang.
Participants from about 25 countries attended the closed-door meeting, and included central bank governors and deputy governors, along with other senior policymakers and regulators.
Range of risks
During the crisis, troubles in one institution quickly spread — leaping across national borders — to threaten the whole complex web of financial relationships. The global crisis showed that simply looking at the safety and soundness of individual financial institutions in isolation is not sufficient; supervisors need to be aware of and respond to a range of systemic risks—and to understand clearly where responsibility lies for addressing those risks.
Another lesson was that policymakers need to avoid complacency in the face of asset price and credit booms. “Clearly, conventional macroeconomic policies and macro-prudential tools are intrinsically linked, just as price stability and financial stability are intrinsically linked,” Strauss-Kahn said. “We need a holistic approach, which means a changing role for central banks in the years ahead.”
The Shanghai conference addressed a range of issues related to macro-prudential policies — meaning policies that focus on the financial system as a whole and attempt to limit system-wide distress through regulation and better supervision.
The conference sought to define the institutional contours of a new macro-prudential policy framework, and the range of tools that could be applied to mitigate systemic risk and limit procyclicality, including regulatory norms and taxes.
Officials discussed country experiences — including from within the Asian region — with a particular emphasis on the interaction of macro-prudential policies and capital flows.
They also discussed the implications of a macro-prudential approach for central bank policies.
Asia rising
At the same time, the conference was intended to highlight the growing importance of Asia in the global policy discussion, especially as the region’s policymakers are taking important steps in the post-crisis period to implement macro-prudential measures to strengthen the system.
The Shanghai conference followed a major gathering in July 2010 in Daejeon, South Korea, that marked a new stage in the Fund’s relationship with the region. The Daejeon conference brought a consensus for a stronger IMF role in Asia, with the Fund making its analysis more useful to Asian policymakers, strengthening the global financial safety net, and enhancing Asia’s voice in the global economy.
© International Monetary Fund
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