Any reshaping of the international financial architecture should therefore concentrate on adjusting incentives by revamping IMF lending policy in the way I have set out. This would automatically entail an enhanced role for the private sector in crisis resolution. IV. Financial market turmoil also raises concern about the stability of the national financial systems.
Prudent financial regulation and supervision are the foundations of financial system stability. Why and how central banks should be involved requires constant clarification. There are good reasons for advocating central bank involvement in financial regulation and supervision. Let’s start with financial supervision. Financial system stability is a prerequisite for the efficient conduct of monetary policy.