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A Second Chance to Fix Finance

Despite progress since the 2008 financial crisis, reforms of the financial sector have been fragmented rather than fundamental. In particular, the system still lacks the effective holistic regulations needed to encourage the optimal global allocation of capital.

PARIS – In December 2018, US stocks recorded their biggest monthly decline since the subprime mortgage crisis. The sharp fall reflected current concerns about slower economic growth, higher interest rates, Brexit, a possible US-China trade war, and rising geopolitical uncertainty. But the recent equity-market volatility has been made worse by a global financial system that remains largely unreformed more than a decade after the 2008 crisis.

To be sure, preventing the entire financial system from collapsing in the wake of the crisis was a success in itself. But, despite some further progress since then, reforms have been fragmented rather than fundamental. The financial system still lacks the effective holistic regulations needed to encourage the optimal global allocation of capital. Should this trend continue, we risk ignoring Winston Churchill’s maxim that one should “never let a good crisis go to waste.”

To ensure that we don’t, a more far-reaching reform of global finance, led by the G20 Financial Stability Board, is needed. Such an overhaul should address several key priorities.

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