The Financial Crisis: Reform and Exit Strategies

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The financial crisis left major banks crippled by toxic assets and short of capital, while lenders became less willing to finance business and private projects. The immediate and potential impacts on the banking system and the real economy lead governments to intervene massively.

These interventions helped to avoid systemic collapse and stabilise the global financial system. This book analyses the steps policy makers now have to take to devise exit strategies from bailout programmes and emergency measures. The agenda includes reform of financial governance to ensure a healthier balance between risk and reward, and restoring public confidence in financial markets.

The challenges are enormous, but if governments fail to meet them, their exit strategies could lead to the next crisis.

Earlier versions of this report were presented at the London G20 meeting in April and the Paris OECD Ministerial meeting in June.

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Table of contents

Summary of Main Themes
Reform Principles
Exit Strategy Principles
I. Introduction
II. Priorities for Reforming Incentives in Financial Markets
A. Strengthen the regulatory framework
B. Focus on integrity and transparency in financial markets
C. Strengthen capital adequacy rules
D. Strengthen understanding of how tax policies affect the soundness of financial markets
E. Ensure Accountability to Owners who’s Capital is at Risk
F. Corporate Structures for Complex Financial Firms
G. Strengthening financial education programmes and consumer protection
III Phasing Out Emergency Measures
A. The timeline for phasing out emergency measures
B. Roll-back measures in the financial sector
C. Fostering corporate structures for stability and competition
D. Strengthening corporate governance
E. Privatising recapitalised banks
F. Getting privatisation right
G. Maximising recovery from bad assets
H. Reinforcing pension arrangements