The aftermath of the Second World War gave birth to the Bretton Woods Institutions. They determined the broad outlines of the international financial system and two organizations intended to work for the economic reconstruction of countries affected by war: IBRD and IMF. But before all that, it had to develop operational steps so that this financial system could work properly.
It is undeniable that the issue of questioning the characteristics of the international financial system arises legitimately when it is rocked by multiple financial crises. In a recent financial crisis, the G20 meetings in 2008 and 2009 on a supposed reform of capitalist system have been the subject of intense attention on the adoption of a Plan of Action and Declaration to strengthen the financial system.
The financial crisis of 2007 is strongly linked to the excessive expansion of credit to compensate for imbalances in the distribution of value addition and consumption, all in a state of "disorder", the overall level of monetary policies, the level of international liquidity and the balance of current payments. The credit crisis that has hit the world is largely due to a financial system out of control, marked by the deregulation of banking and the creation of mechanisms of securitization of credit resulting in an explosion of titles distributed randomly. Through the reflections of the G20, what possible reorganization of the global financial system can be considered?
Tags: Second World War, Bretton Woods Institutions, financial system, economic reconstruction, financial system, monetary policies.
[...] Tools such as the ratio of capital adequacy are insufficient to deal with systemic risk (they have been established in response to idiosyncratic shocks), which calls for amendments to meet prudential requirements. What policy on capital adequacy adopted to insure against the cyclicality? As noted above, the behavior of banks vis-à-vis capital is procyclical during the rising phase, the amount of equity is neglected, they decrease relatively, even as the situation becomes increasingly risky.Conversely, during the downturn, the risk is overstated and agents look to increase their share capital even as they become increasingly expensive due to the panic. [...]
[...] the response of the G7 to the Asian crisis. The latter then called for action to promote the efficient functioning of the market, according to a principle of self- regulation. In 2009, their position changed considerably. G20: principles The G20 statement denounced the impotence of the current financial organization to deal with macroeconomic cycles, among others described by Minsky. The Keynesian is strong enough, and it speaks of underestimation of risk by the markets, low awareness of rare events in favor of "short-term memory." The reports show a loss of confidence in the theories of self- regulation markets, which also proved more efficient when one takes into account the interdependencies in the system. [...]
[...] They therefore urge upon us the opportunity to take concrete actions. The difficulties of a practical application G20 focuses on risk control, but how can we intervene? It would first have a central international institution recognized by all in order to transcend the national regulations, or the roles are shared between the International Monetary Fund and the Council of Financial Stability. Moreover, what can we do? The reform of the new IFRS accounting standards, which are operating on the principle of fair value and assessment at market price, is responsible for the fragility of bank balance sheets and the extremely risky positions taken by several agents, producing very sensitive situations: economic downturns.But should we therefore return to the method of historical prices, causing opacity of the accounts of financial scandals such as Enron in 2001? [...]
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