The crisis also brought to the fore the role of the sovereign in financial stability – first as a lender of last resort in case of bankruptcy and then as the harbinger of financial instability. The burden of past fiscal indiscretions in several advanced economies, coupled with the stimulus measures taken as part of the crisis management has returned to haunt policy makers.
Global instability acquired a new “avatar” – that of a sovereign debt crisis. To address the deficiencies which led to the global crisis, the international standard setters – Basel Committee on Banking Supervision (BCBS) and Financial Stability Board (FSB) – have undertaken a massive overhaul of the regulatory framework.