Safety and Stability

We are working with regulators to improve the safety and stability of the global financial system.

• Greater transparency: Greater transparency is needed to help regulators and risk managers monitor systemic risk as it builds in the financial system. Financial institutions need simpler organizational structures and more consistent and rigorous use of a consistent set of regulatory, accounting and valuation rules. Fair value accounting gives investors more clarity about balance sheet risk.

• Stronger management: Management and regulatory oversight have not kept pace with the rapid pace of innovation in the financial system over the past decade. In retrospect, it is clear that some of the most complex financial firms lacked enough operational expertise to manage the risks they had taken on. We in the financial system as a whole cannot let our ability to innovate exceed our capacity to manage. Given the size and interconnected nature of markets, the growth in volumes, the global nature of trades and their cross-asset characteristics, managing risk will only become more important.

• Better risk management: It is essential that financial firms manage risk more effectively. Risk management should involve checks and balances throughout the firm. Good communication within the firm is essential. Risk managers and internal control functions need to be well staffed and entirely independent from the business units they oversee. Investors too must take more responsibility for their own risk assessments and not simply rely on ratings agencies.