International Financial Stability

Geneva Report on the World Economy 9: Until recently, low risk premia and continuing high returns were increasingly seen as permanent characteristics of the new international financial system, fuelled by unprecedented global risk diversification and supported by highly sophisticated financial instruments. This view was far too optimistic, as the recent turmoil in the world's financial markets has revealed. The ninth Geneva Report on the World Economy examines the main threats to financial stability in the major industrial economies and the emerging markets, focusing on the implications of the major changes that have occurred in the global financial system in the past two decades. The Report first examines financial stability from a macro per­spective, considering macro­economic imbal­ances, the decline (and spike) in financial market volatility and its causes, and international financial integration. It then examines stability from a micro perspective, considering the implications for stability of the growth of household risk bearing, financial sector consolidation, the emergence of new financial instruments and the growth of hedge funds. It concludes by setting out a series of practical proposals to enhance financial stability.

The authors of the Report include:

• Roger W. Ferguson, Jr., Member of the Executive Committee, Head of Financial Services and Chairman of Swiss Re America Holding Corporation, and formerly Vice Chairman of the Board of Governors of the Federal Reserve System
• Fabio Panetta, Head of the Department for Economic Outlook and Monetary Policy at the Banca d'Italia, and a member of the G-10 Governors' Committee on the Global Financial System
• Richard Portes, President of CEPR and Professor of Economics at London Business School

Publication Date: 12.11.2007

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