OCTOBER 2009 | VOL. 23 NO.9
At last, after months of uncertainty, countries around the world are beginning to quietly unwind their stimulus programs, suggesting that those in the know are confident the world’s economy is no longer about to implode. The most forthright so far, perhaps not surprisingly, has been the United States (see Milestones, page 12), which has made it clear that its support for banks is now closed-ended. Financial authorities in other countries, including the United Kingdom, Canada and New Zealand, have also intimated that their economies have stabilized enough that they won’t need further stimulus packages.
While the apparent return to a more normal financial world is cause for celebration, it also brings with it some concerns. The subprime fiasco and its evil half brother, the credit crunch, exposed some deep fissures in the structure of the world’s financial markets that have yet to be closed up. But as the threat of impending doom dissipates so does the determination to make difficult and permanent changes to the system in order to prevent a repeat of the credit crunch.
There is hope, though, and those who fear a return to business as usual have recently found they have some powerful allies. US Treasury secretary Tim Geithner has thrown his weight behind the campaign to tighten capital requirements on banks (see Newsmakers, page 6) while Britain’s chief financial regulator, Adair Turner, has made it clear he believes the shake-up of the banking industry in Britain has only just begun.
Powerful though they are, such champions of reform face one huge obstacle: inertia. As economies begin growing again and banks post healthy profits, fear is being ousted by optimism and confidence while calls for regulatory reform are being drowned out by complaints that tighter regulations will hinder the recovery. To an extent, that is true, but for the recovery to be sustainable, profound systemic changes are still necessary. If reform efforts stall and those changes don’t take place, it would be a missed opportunity of colossal proportions.
Until next month.