Closer View of Financial Links Can Help Avert Crises

Immediate priority is to restore stability, limit euro area spillovers

Medium-term goals include more systemic view of global surveillance

IMF is also supporting efforts to close data gaps laid bare by global crisis

The institution is drawing up a strategic plan for its financial sector monitoring—or financial surveillance—focusing on the links and transmission channels between systemic financial institutions, markets, and national economies.

The IMF has completed a stocktaking exercise and work agenda on financial surveillance as a first step to developing a fully fledged strategy, which will follow a period of consultation with other global stakeholders.

As the global financial crisis has underscored, understanding the links and transmission channels between systemic financial institutions, markets, and the macroeconomy, as well as cross-border linkages between national financial systems, is essential in helping countries avoid the worst outcomes.

For this reason, in recent years, the IMF has placed a high priority on financial sector work and macrofinancial linkages. The IMF’s 2011 review of the effectiveness of its economic analysis and policy advice called for further steps in this direction—in particular, to better integrate financial sector work into the IMF’s regular macroeconomic surveillance.

One of these steps was a strategic plan for financial surveillance. This is particularly timely given the profound changes in the international financial landscape and policy agenda since the crisis, and notably the emergence of important new global actors, such as the Group of 20 leading advanced and emerging market economies, and the Financial Stability Board.

First step toward a strategy

The work agenda takes stock of the extensive body of work that the IMF has already done, and defines both immediate and more...