30 For example see Baranova, Y; Coen, J; Lowe, P; Noss, J; and Silvestri, L (2017), Simulating stress across the financial system: the resilience of corporate bond markets and the role of investment funds, BoE FS Paper No. 42, July. 29  21  All speeches are available online at www.bankofengland.co.uk/speeches  21  pooled resources, achieving the same level of insurance for a much lower cost.31 This would imply a tripling in the IMF’s resources over the next decade, enough to maintain their current share of global external liabilities. 32 The design of the GFSN is also important. Positive steps have been made in recent years by introducing precautionary liquidity facilities so countries can borrow to prevent crises, as well as mitigate their impact. This should also reduce stigma of drawing on the facilities. But so far, only a few countries have taken them up. It is important to do everything we can to normalise use of these precautionary facilities. 33 Conclusion In the deceptively simpler time of the pre-crisis world order, “keeping your house in order” was a handy prescription of the G7 to EMEs. When countries were hit by volatile capital flows, they were admonished that there were “no innocent bystanders” and that only by doubling down on the Washington Consensus reforms could they be free to enjoy the benefits of sustainable cross-border investment. The experience of successive crises and shocks – confirmed by the Bank of England’s analysis – suggests that advice was once worthy but is increasingly incomplete.
1  Comparison is between medians for the high and low groups of the sample shown in Chart 1 and 2, with high and low groups defined as those above and below medians of the sample. 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  Time and again, waves of investment into EMEs are sharply withdrawn (Chart 3). And more generally, financial openness has tended to amplify domestic imbalances and leave EMEs more vulnerable to foreign shocks.2 As a consequence, a fifth of all surges in capital flows to EMEs have ended in financial crises. And EMEs are at least three times more likely to experience a financial crisis after capital flow surges than in normal times. 3 Chart 3: Net private capital flows to emerging market economies and incidences of crises Number of EM crises (rhs) Net private capital flows to Non-China EMEs (lhs)  % of GDP 6  Number 6  Crises tend to occur when capital flows slow  5  5  4  4  3 3 2 2  1  1  0 -1  1980  1985  1990  1995  2000  2005  2010  0  2015  Source: IMF. Notes: Excludes China.