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The Global Financial Stability Architecture Fails Again: sub-prime crisis lessons for policymakers


  • Sitikantha Pattanaik

    1. Department of the Central Bank of Oman
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      An economist with the Economic Research and Statistics Department of the Central Bank of Oman. Views presented in this paper are strictly personal. The author is grateful to an anonymous referee for extensive and very useful comments on the earlier version of the paper.


Every financial crisis leaves behind important lessons, while exposing the limitations of the policy framework for preventing a systemic crisis. The sub-prime crisis has seriously dented the credibility of every institution vested with the responsibility for promoting financial stability. Besides the immediate global policy accent on crisis management in the form of unprecedented bailouts and massive liquidity injections, considerable analysis and policy emphasis has been directed at understanding the crisis in order to identify why and where the international financial stability architecture failed, and how it could be restructured to make it more effective in preventing another major financial crisis in future. The paper outlines the causes of the crisis, highlights the important policy issues that the global policy making community has to address, and discusses several suggestions for improving the global financial stability architecture.