Financial globalization and crises: overview

Financial globalization, the integration of countries with the global financial system, has increased substantially since the 1970s and particularly with more force since the 1990s. Financial globalization has shown to pose both benefits and risks to developed countries and developing countries alike. The Handbook of Financial Globalization aims at analyzing this process of financial globalization, from its driving forces to its consequences. In this overview chapter, we provide a brief summary of the chapters reviewing the empirical evidence on globalization and crises

A cross-country perspective on the causes of the global financial crisis

The global financial crisis is rooted in a combination of factors common to previous financial crises and some new factors. The four features in common with other crises are (1) asset price increases that turned out to be unsustainable, (2) credit booms that led to excessive debt burdens, (3) buildup of marginal loans and systemic risk, and (4) the failure of regulation and supervision to keep up with and get ahead of the crisis when it erupted. Four key new aspects were (1) the widespread use of complex and opaque financial instruments; (2) the increased interconnectedness among financial markets, nationally and internationally, with the United States at the core; (3) the high degree of leverage of financial institutions; and (4) the central role of the household sector. The chapter also describes the evolution of the crisis, including the different stages of crisis containment, and reviews the main government interventions (until mid-2009) to restore confidence in financial systems

Lessons and policy implications from the global financial crisis

The crisis has brought to light a number of deficiencies in financial regulation and architecture, particularly in the treatment of systemically important financial institutions, the assessments of systemic risks and vulnerabilities, and the resolution of financial institutions. The global nature of the financial crisis has also made clear that financially integrated markets, while offering many benefits, can pose significant risks, with large real economic consequences. Deep reforms are, therefore, needed in the international financial architecture to safeguard the stability of an increasingly financially integrated world