This forced domestic manufactures and mining companies to make significant adjustments to their development plans in order to protect profitability. From this brief description of the pros and cons of financial liberalisation and globalisation it should be apparent that these developments have significant implications for prudential and supervisory policy, i.e. for systemic risk and the ability of the appropriate authorities to manage them.
Derivatives, off-balance-sheet operations and diversification across countries and sectors have made traditional risk-management techniques obsolete and have increased the scope for and the speed of contagion. A liquidity shortage in a particular market can rapidly spread throughout the global market.