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The Bank for International Settlements (BIS) released their 81st annual report on June 26, 2011. It reports on the period ending March 31, 2011.
The introductory chapter gives this summary:
"Over the past year, the global economy has been moving towards healthy, stable, self-sustaining growth, albeit in fits and starts. Despite that good news, significant work remains to be done.
Even before the financial crisis created the need for massive stimulus, government budgets in many advanced economies were on an unsustainable path. Fiscal authorities need to act quickly and decisively before disaster strikes again. This means addressing the structural imbalances that are among the myriad causes of the crisis as well as a dangerous part of its legacy. In the countries that were at the centre of the crisis, those imbalances include the lingering indebtedness in the private sector – households as well as financial and non-financial firms – which must be cut to levels well below those seen in the middle of the last decade. Structural adjustment for those countries also means eschewing the model of leverage-led growth, a prerequisite for a rebalancing of the global economy.
Large and persistent current account imbalances continue to plague the global economy, while the immense gross financial flows coursing through the system are intensifying risks to financial stability. International cooperation and coordination is particularly needed here if we are to avoid a painfully disorderly adjustment. Nonetheless, even without coordination, deficit countries can and should encourage more saving, and surplus countries more consumption; it is vital that each country first puts its own house in order.
Central bankers have their work cut out for them as well. They confront distortions exacerbated by years of extraordinarily accommodative monetary conditions. Prime among the challenges is the increasing risk to price stability. Output gaps are closing, commodity prices have been surging, and inflation is rising around the globe. The dangers are most acute in emerging market economies, but they also extend to the core advanced economies.
On the regulatory front, where authorities have agreed to a number of important reforms, challenges remain. Systemically important financial institutions must be made more resilient. Resolution regimes must be built to manage the failure of even the largest financial firms. And the regulatory framework of the future must be such that any institution that does the work of a bank will be treated like a bank regardless of its legal form of organisation.
Finally, the crisis exposed large gaps in the data available for measuring financial vulnerabilities and systemic risk. In the short term, the key to addressing the problem is identifying the important gaps that can be most expeditiously filled, and then filling them."
