Bretton Woods@75 Dialogue: Whither the Global Financial System?

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On May 8, 2019 the Bretton Woods Committee and Morgan Stanley co-hosted a Bretton Woods@75 Dialogue: Whither the Global Financial System?. The dialogue examined the tension between domestic sovereignty and international cooperation in recent years and the implications for the future financial system.

Morgan Stanley President Colm Kelleher, Chief Financial Officer Jon Pruzan and former President and CEO of the Federal Reserve Bank of New York William Dudley were featured speakers. Richard A. Debs, Chair of the International Council of the Bretton Woods Committee and Advisory Director at Morgan Stanley, moderated the discussion.

This conversation focused on a few central themes:

• Markets are Global, not Local – Markets are global, not local, and by their integrated nature require coordinated solutions rather than being viewed as a zero-sum game. Participants discussed how tension between globalization and domestic policies has the potential to limit capital flows and increase fragmentation of markets. Brexit is the most visible example threatening the value of a unified capital market, but cyber risks, corruption, climate change, trade are all growing cross-border challenges impacting the global financial system that will require cross-border cooperation.
• Re-establishing Trust – Participants agreed there still needs to be more progress on re-establishing public trust in the global financial system. Although banks have become much safer post-crisis, residual distrust regarding bank conduct and culture remains, and risks have since shifted into shadow banking and central clearing houses. Additionally, a more recent distrust has emerged in the ability of politically-appointed government representatives to negotiate in good faith and agree on standards for responding to future crises.
• Cooperation is Key - Global regulatory coordination has been a positive example of cooperation post-crisis. Cross-border regulatory harmonization efforts, transatlantic standard setting and central bank coordinating platforms have all been positive examples of cooperation that have helped to ensure a safe and resilient financial system. However, regulatory balkanization and de-regulatory efforts risk making it harder to see where the next threat will come from, and fewer policy tools exist today than did pre-crisis. Policymakers should apply the positive lessons of past and continue toward a coordinated global regulatory agenda as new risks emerge. Global coordinating bodies such as the IMF and the BIS will have a critical role to play in ensuring cooperation for the safety and soundness of the global financial system in the future.