The international financial architecture and its development towards preventing future financial crises

Abstract

Given financial crises all over the world, both in developing countries and in developed countries, there are continuous changes in the financial arena. The financial architecture, which refers to a broad framework and a series of measures at an international level, manages financial crises and more importantly help in preventing such crises. It has to be maintained and supervised so as to keep the financial system working without any interruptions. In this study, the financial crisis of 2008 will be analysed to see how and why it erupted. Were there any measures in place that could have stopped this from happening? Was regulation in place? If regulation was in place, was it enough, or was it the appropriate regulation under the circumstances? Or could it be that regulation was in place but applied sparingly or, even worse, not applied at all? The prime question is - what could have gone wrong in the financial architecture and what can be done today, to try, and as far as possible, help prevent similar situations in future? Institutions such as the International Monetary Fund (IMF) coordinate countries to help in the collaboration of securing financial stability. These help in facilitating international trade together with other functions. Such fund is going to be researched to see what were the measures that it ii took and is taking in addressing financial problems, and whether the existing financial architecture needs to be adjusted. Another aspect which is going to be taken into consideration is whether this organisation could have created the problem in the first place due to the help it offers to countries during periods of instability. Areas such as the imposition of law, and the aspect of educational infrastructure will be dealt with, so as to see what approaches could be adopted to combat areas that will be present if one had to adopt an anarchy approach. The objective of this dissertation is to see whether there should be further developments in the existing financial architecture and whether a new financial architecture is the way forward. Two local banks were interviewed in order to investigate and understand their views with respect to what Maltese banks are doing to try and keep a stable financial sector. Professor Joseph Bannister, the Chairman of the Malta Financial Services Authority (MFSA) was also interviewed to get the Authority's point of view of the crisis. Mr. Robert Aquilina, the senior manager of the communications unit at the MFSA suggested the review of the Chairman's Statement enclosed in the 2009 annual reports so as to analyse the financial situation of Malta. Such information was required to get additional information on how current worldwide situations are affecting the Maltese financial industry, and what Maltese authorities are doing to keep, as far as possible, a healthy financial sector for businesses, institutions and investors.