The Bundesbank deems a market-based approach suitable for maintaining stability in the international financial system. In this concept, government at both the national and the international level, establishes an institutional framework that sets incentives for pursuing sustainable policies and prudent risk-taking. The lessons learnt from the recent episodes of financial distress have considerably expanded our knowledge of the origin, development and spread of crises.
On the basis of this, benchmarks and best practices have been described by various bodies. The Financial Stability Forum has assembled “12 Key Standards for Sound Financial Systems”, and the G-20, an informal amalgamation of the G-7 countries and large emerging market economies, has conducted extensive research on institution building in the financial sector and drawn useful conclusions.