The Dangerous Inadequacies of the World’s Crisis-response Mechanisms

The paper war-games crisis scenarios based on past crises to test the adequacy of the global financial safety net: the international institutions and arrangements designated to help economies facing an economic or financial crisis. It calculates the size of the safety net in aggregate terms and from the perspective of each G-20 economy. It explores whether the safety net is large enough, how the different components of the safety net would need to interact during a crisis and how this differs for different countries and regions. For some widespread shocks, the paper finds that the safety net struggles to provide even the same level of support as it has in the past. Even for smaller shocks, multiple components of the safety net need to be coordinated, a process complicated by the differing objectives, mandates and interdependencies of each component. The paper shows how the safety net’s coverage has become patchier, leaving many emerging market and developing economies exposed. It explores what the G-20 could do to strengthen the safety net, reporting the results from in-depth interviews with 61 leaders, central bank governors, ministers and officials from across the G-20, including Janet Yellen, Kevin Rudd, Ben Bernanke, Haruhiko Kuroda, Jack Lew, Mark Carney and 55 others.