Finance & Development, A quarterly magazine of the IMF.

Features
The Financial market crisis
8 A Crisis of Confidence . . . and a Lot More
Better incentives for all market players hold the key to greater financial stability
Laura Kodres

14 Outbreak: U.S. Subprime Contagion
Any of the problems in the U.S. mortgage market could have been contained; together, they caused a crisis that spread across the globe
Randall Dodd and Paul Mills

19 Point of View: Asia: A Perspective on the Subprime Crisis
The catchphrases may be different, but there are many similarities between the 1997 Asian financial crisis and today’s
Khor Hoe Ee and Kee Rui Xiong

24 Banking on More Capital
The subprime crisis has made Basel II implementation more important—and challenging
Jaime Caruana and Aditya Narain

29 Point of View: Will Basel II Help Prevent Crises or Worsen Them?
Two points of view on whether Basel II adds to boom-bust cycles
Jesús Saurina and Avinash D. Persaud

ALSO IN THIS ISUE
36 How Much Decoupling? How Much Converging?
Business cycles may be converging among industrial and emerging market economies, but the two groups appear to be decoupling from each other
M. Ayhan Kose, Christopher Otrok, and Eswar Prasad
41 Turning Currencies Around
For foreign exchange intervention to work, central banks would need to work together
Atish Ghosh
46 A Capital Story
The sharp increase in private investment flows to low-income countries is an untold development success story
Thomas Dorsey
50 In Sight, but Not Yet within Reach
Halfway to the target date, concern is mounting that many Millennium Development Goals could be missed
Zia Qureshi

Download Finance & Development Magazine, June 2008

PDF format, 3MB, 60Pages.

Are business cycles decoupling?
Johnson on food, fuel prices
OTC markets explained
Jacques Polak profiled

Visit Finance & Development Magazine, June 2008 Website

FROM THE EDITOR
Risky Behavior

WHAT started as a subprime mortgage crisis in the United States in summer 2007 is still being felt, nearly a year later, in a surprising variety of places—such as markets in which banks make loans to one another, short-term commercial paper, municipal bonds, and even student loans, and not only in the United States. The financial turmoil—now global—continues to raise worries about global financial stability, prompting F&D to ask: How did the crisis spread, and what can be done to minimize the likelihood of this type of financial crisis and ensuing contagion occurring again?

In our June issue, we tackle this question from a number of angles. Our lead story, “A Crisis of Confidence ... and a Lot More,” argues that the source of the problem and, hence, the solution lie in “incentives, incentives, incentives.” But, that said, the remedies won’t be easy to implement, given that faulty incentives are already entrenched in the marketplace and in regulatory and supervisory systems—incentives that encouraged traders, investors, and loan originators to take way too many risks, which were often camouflaged by opaque, complex securities and facilitated by too much leverage and lax credit standards.

As policymakers debate ways to reshape incentives, the authors of “Outbreak: U.S. Subprime Contagion” suggest that they keep the following objectives in mind: moderate leverage, improve liquidity management, foster market liquidity, promote due diligence, and increase transparency. And they note that a key lesson is that risk management at individual banks shouldn’t be focused so narrowly on protecting the institution that systemic risks are largely ignored.

Two other articles explore the debate surrounding steps being taken to shore up banking systems. At the center of the debate is the ongoing implementation of what is known as Basel II—an international standard for the amount of capital that banks need to put aside to deal with current and potential financial and operational risks.

From the Monetary Authority of Singapore, we get an Asian take on the similarities and differences between the 1997–98 Asian financial crisis and the U.S. subprime crisis—plus thoughts on what Asia and emerging markets generally can do to maintain their resilience to the current financial turmoil.

Finally, with the June issue, I am stepping down as Editor-in-Chief of F&D after six-and-a-half years. I have immensely enjoyed the challenges of guiding this publication—especially putting together four thought-provoking issues a year that give our highly diverse readership a taste of the critical financial, economic, and development issues facing the international community.

I hope that you’ve enjoyed the packages that my wonderful team has assembled, and I’d like to thank all of you for your comments, suggestions, and support over the years.
Laura Wallace
Editor-in-Chief

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