Modernizing Financial Systems

Since the 1980s many changes have taken place in the financial system in the United States and to some extent in other countries—uniform capital requirements have been instituted, regulations have been eased, and market share consolidation of firms in the financial services business has been allowed. But more substantive reforms are necessary to avert crises such as those that occurred in Japan, Korea, and other Asian countries.

Financial and technological innovations have brought new dimensions of credit risk, requiring sophisticated skills of bank manager and regulator alike. The modernization of the financial system must reflect the changing and competitive nature of the market and be framed in a regulatory and supervisory environment that, first, ensures the safety of the payment system and, second, offers incentives for prudent risk taking and sound portfolio investments. This book offers a number of policy avenues that merit serious consideration.