The international financial crisis has demonstrated that there is a need for financial institutions having bigger capital buffers and larger and more stable liquidity reserves. Events deemed very unlikely by risk management models did actually occur. International work is going on in order to formulate and agree on new rules addressing the problems unveiled by the crisis.
Contrary to the “it’s mostly fiscal” view of the crisis,2 financial sector developments largely explain the build-up of unsustainable current account and competitiveness positions in peripheral countries before the crisis. The current account deficits in most peripheral countries were in fact led by huge capital inflows implying capital account surpluses.