How to prevent the next financial crisis

By EBRD  Press Office
@ebrd

How to prevent the next financial crisis

New episode of the EBRD podcast available for download

In a new episode of the Pocket Economics podcast, Tamim Bayoumi, deputy director in the Strategy, Policy and Review Department at the International Monetary Fund, and Jonathan Charles, EBRD Managing Director, Communications, discuss how we can head off another financial crisis.

A decade has elapsed since the start of the most recent financial crisis, the worst since the Great Depression. Now is a good moment to ask whether today’s financial system is truly secure and resilient and whether policymakers and economists can predict and even prevent the next crisis.

In his discussion of the recovery from the 2008 crisis in the United States and the Euro-area Mr Bayoumi underlines the importance of understanding that event’s causes so as to prevent a repetition.

But he also points to the inherent difficulty of guessing when future crises will actually break out.

“Timing a financial crisis is essentially impossible,” he explains. “What you can see is the underlying things happening, but exactly when the dam will break is really impossible to tell.”

But what is the role of international financial institutions in strengthening the resilience of economies and helping prevent financial crises?

“It is often easier for an outsider to see things going wrong than for an insider to see them,” he says. “The insider sees all the benefits, whereas an outsider comes in and says ‘that doesn’t look right’. The secret is convincing the other side that you are right.”

In his new book “Unfinished Business”, Mr Bayoumi explores the causes of the 2008 financial crisis and the lessons yet to be learned from it.

He asks what conclusions can be drawn from the way what he calls the North Atlantic region found itself in the grip of such a cataclysmic crisis.

He also explains what still needs to be done both to complete the subsequent clean-up and to stop anything similar happening in the future.

The views expressed by Mr Bayoumi in this episode of Pocket Economics are his own and do not represent those of the IMF.