The international community may in future need to provide stronger incentives to countries to improve debt structures, be it through GDP-linked bonds, CoCos or CACs. Linking the availability or terms of IMF financing more explicitly to debt structures might be one way of doing so. (c)  Enhanced macro-prudential and capital flow management policies  Significant progress has been made over the past decade in the design and implementation of macro-prudential regimes and capital flow management policies. The shift in the prevailing orthodoxy, analytically and operationally, has been remarkable. 8  BIS central bankers’ speeches  A decade ago, policies to manage actively inflows and outflows of capital were frowned upon by the IMF and the international community. Yet today these measures have been largely accepted as part of the toolkit for protecting countries from boom and bust cycles in capital flows (IMF (2012)). Perhaps most significantly of all, more than 40 countries have already deployed these measures since 2009. A great many analytical and operational issues remain open. What are appropriate states of the world for introducing and releasing capital flow management measures – a first or last resort? Which policy measures are likely to be most effective – outflow versus inflow, price versus quantity controls? And how do these policies operate alongside other arms of policy – monetary, macro-prudential and micro-prudential? At present, we have neither the theory nor the experience to answer these questions definitively.
That is why systemic risk entered the public lexicon. And that is why financial regulation has, in the period since, been fundamentally re-oriented towards the monitoring and management of systemic risk. Interestingly, that lesson would have come as no surprise to anyone familiar with dynamic, integrated networks outside of the world of finance. Assessing the stability of almost any network known to man – whether natural, physical, social or economic – relies upon a system-wide assessment. And protection mechanisms for this system need to be calibrated to system-wide characteristics (Goldin and Mariathasan (2014)). Financial webs are no exception. The history of financial crises suggests they may be closer to the rule. BIS central bankers’ speeches  1  This new orthodoxy has framed the post-crisis regulatory reform agenda. It is why so-called macro-prudential policy has risen in prominence. It is why the world’s most inter-connected banks will in future be required to run with extra capital and liquidity. It is why OTC derivatives will in future be centrally traded and cleared. And it is why resolution of the world’s largest, cross-border banks has become such a priority. For the global banking system we now have a blueprint, an emerging new set of international rules of the road.