Foreword

Mario Draghi

This article was first published as a chapter in Basel III and Beyond on July 27, 2011, by Risk Books

One central lesson we have learnt is that the financial system entered the crisis with too little capital, liquidity buffers that were far too small, and a capital and valuation regime with significant procyclical consequences. Buoyant economic conditions and loopholes in regulation led inexorably to imprudent risk taking in the financial sector.

The response of the authorities has been prompt, with emergency interventions followed by a comprehensive roadmap for reforming financial regulation at the global level. I often recall the drivers of the reform; the novelties that have played a key role in getting us to where we are now. We have certainly come a long way towards strengthening the financial system since the crisis began. This has been achieved through (i) the newly developed consciousness that we all sit in the same boat because the financial systems are integrated and strongly correlated; (ii) the guidance of the G20 in agreeing objectives and timelines for substantial changes; and (iii) the establishment of mechanisms, such as the Financial Stability Board (FSB)