To lower the likelihood of financial crises:
Securitisation should be regulated to restore proper incentives for
banks.
The euro area should adopt a regulatory system based on objectives.
The short-comings of the Basel II accord should be addressed.
While difficult, ways must be found to incentivise financial firms to
change the way they compensate employees.
The euro area should have a single supervisor and regulator charged
with ensuring financial stability.
To prevent liquidity crises:
There should be good systems of deposit insurance.
Countries without important reserve currencies should not have large internationally exposed banking systems.
To decrease the likelihood of exchange rate crises, the powers in Brussels and
Frankfurt
should allow potential future members of the euro area to unilaterally
adopt the euro without jeopardising their chances of future membership
in the euro area.
should not enforce the exchange rate criterion of the Maastricht Treaty.
Early warning of a financial crisis
is unlikely to be best provided by the IMF
might be provided by an independent committee of experts and
individual market participants
International cooperation in developing crisis management measures and
disseminating this knowledge is desirable; funding these measures must be left
to the national governments.
Managing a crisis
Requires writing off bad assets: Central banks should learn how use
auctions to value non-traded securities.
Requires short-term liquidity provision to and recapitalisation of viable
financial firms: Countries should not have banking sectors that are to
big to rescue.
International coordination to avoid beggar-thy-neighbour regulatory
anpolicies and exchange rate policies
