Lessons From the Recession: Lesson 1-The Financial Sector is Unique and Needs New Standards

The financial sector plays a special role in the economy. No other sector is so fundamental to economic activities; without it, capitalism would not be able to exist. The shattering of business and consumer confidence at the height of the global financial crisis exemplifies how problems in the financial sector can have a ripple effect through many other parts of the global economy. Significant policy intervention by central banks and governments was needed to restore confidence and build a floor under the financial system. Policy makers now need to ensure that a crisis of this magnitude does not happen again.

This executive action argues that broad principles regarding minimum standards and best practices for capital requirements, transparency, and accounting rules—as well incentives to implement and follow such rules—need to be established internationally and put into force locally.