The first is to plan retrofitting much more systemically at the metropolitan scale.

In economic terms, workers' remittances were systemically important, accounting for 1.3 per cent of developing countries' gross domestic product in 2002.

Most obviously, as many trades move from the banks to the clearinghouse, the clearinghouse itself will become a systemically vital institution. It will be too big to fail.

Above all, the G 20 s decision to prop up systemically relevant banks must be revisited. And governments must respond to the banks threats by declaring their willingness to let insolvent banks be judged accordingly.

And systemically what we will show, across a series of studies, is that you, the passengers, even though the tea was picked for you at random, will end up solving more puzzles than you, the drivers.

After all, private creditors hold only a minimal share of Greek debt nowadays. In 2010 2012, by contrast, systemically important European banks were exposed, raising the risk of a domino effect that threatened the entire eurozone.

No one likes scrutiny, of course. And everyone in the asset management industry seems to fear being put under the Fed s microscope, which is what happens if the FSOC determines that a business is systemically important.

Yet countries seem hesitant to contribute to the reform and strengthening of these institutions. In fact, a growing number of systemically important countries have taken measures that are undermining the Fund and the Bank, albeit largely inadvertently.

Finally, some observers although relatively few at this point argue that the biggest banks have greatly improved their control and compliance systems, and that the mismanagement of risk on a systemically significant scale is no longer possible.

The IMF should also be more proactive and speak with greater candor in systemically important countries, where shortcomings in financial supervision and crisis management have appeared. It should assist emerging economies in shaping sound domestic financial markets.

But, when over used by systemically vital firms, they can blow up the financial system, owing to its design defects. Even today, about 70 of the core US financial firms liabilities are very short term loans, like overnight repos.

The school solution, agreed at the Financial Stability Board in Basel, is that global regulators should clearly identify systemically significant banks and impose tougher regulations on them, with more intensive supervision and higher capital ratios. That has been done.

So far, the G 20 s call to think globally has turned into act locally. We hope that the G 20 leaders will think systemically at Cannes, and act nationally and cooperatively to defuse the global credit glut minefield.

To this end IMF surveillance should include regular updates on supervisory regimes in systemically important countries. Early warnings, commissioned by the G20, should be specific and the IMF should monitor whether policymakers give follow up to the Fund s advice.

So far, the G 20 s call to think globally has turned into act locally. nbsp We hope that the G 20 leaders will think systemically at Cannes, and act nationally and cooperatively to defuse the global credit glut minefield.

This trend might well continue until cross border claims become so small that they are no longer systemically important as was true before the introduction of the euro. At the current pace, this point might be reached within a few years.

This is because the Fund has experienced exceptionally high access and prolonged use of its resources by a few large economies in the last decade. Moreover, the IMF s share in crisis countries total external debt has reached unprecedented and systemically problematic levels.

In an ordinary industry, incompetent firms (and their employees) would be forced to exit. In the financial sector, the incompetent take on more risk, hoping to hit the jackpot, even while the regulator protects them by deeming them too systemically important to fail.

Economic growth rates in other systemically large countries, including Turkey and Mexico, have risen as well, despite European and US headwinds. Many African countries, too, are showing a broad pattern of sound macroeconomic fundamentals, durable growth acceleration, economic diversification, and investor confidence.

Perhaps most important is a coherent, consistent approach to dealing with the imminent failure of systemically important institutions. Taxpayers and governments alike are tired of bailing out creditors for fear of the destructive contagious effects of failure nbsp even as bailouts encourage excessive risk taking.

Systemically important emerging economies are also subject to considerable uncertainty. Brazil s presidential election in October will determine whether the country makes progress toward a new, more sustainable growth model or becomes more deeply mired in a largely exhausted economic strategy that reinforces its stagflationary tendencies.

And yet much of the current uncertainty is set to dissipate. In the coming months, highly consequential policy decisions (or their absence) in systemically critical parts of the global economy will be revealed, with significant effects on growth rates, asset prices, and overall confidence.

With Germany s reunification, the main impetus behind the integration process was removed, the financial crisis unleashed a process of disintegration. The decisive moment came after Lehman Brothers collapsed, and authorities had to guarantee that no other systemically important financial institution would be allowed to fail.

Perhaps most important is a coherent, consistent approach to dealing with the imminent failure of systemically important institutions. Taxpayers and governments alike are tired of bailing out creditors for fear of the destructive contagious effects of failure even as bailouts encourage excessive risk taking.

Of course, some discussion of financial sector reform is taking place in a variety of forums, with a gradual consensus building around sliding or incremental capital adequacy rules. But many systemically important banks became bigger rather than smaller as a result of the crisis.

Refusing to pay is not a viable option, because Germany and all other eurozone members are in the same boat. A Greek default would threaten to sink them, too, for it would raise immediate concerns about the solvency of Europe s systemically important banks and insurance companies.

LONDON Obviously, the global financial crisis of 2008 2009 was partly one of specific, systemically important banks and other financial institutions such as AIG. In response, there is an intense debate about the problems caused when such institutions are said to be too big to fail.

There are not that many modern varieties of this sort of practice, but the 1944 United Nations Monetary and Financial Conference at Bretton Woods comes close. By systemically engaging with the economic issues involved in building a viable international system, experts created a new global economic and political order.

Though many Middle East countries remain highly unstable, none of them is systemically important in financial terms, and no conflict so far has seriously shocked global oil and gas supplies. But, of course, exacerbation of some of these crises and conflicts could lead to renewed concerns about energy security.

Throwing money at banks hasn t helped homeowners foreclosures continue to increase. Letting AIG fail might have hurt some systemically important institutions, but dealing with that would have been better than to gamble upwards of 150 billion and hope that some of it might stick where it is important.

Papandreou s decision to call a referendum in Greece could thus have marked the beginning of the endgame for the euro. At this point, the common currency can be saved only if systemically important countries namely, Italy and Spain take concerted action to demonstrate that they are different from Greece.

Then came the crash of 2008, which originated in the United States but caused greater problems in Europe than anywhere else. Policymakers responded to the collapse of Lehman Brothers by announcing that no other systemically important financial institution would be allowed to fail, which required substituting state credit for frozen markets.

We should be examining how to make derivatives and repo investors assume the full risk of their decisions when dealing with systemically vital financial institutions. Instead, we survived the financial tsunami of 2008, only to rebuild in the same place, on the main financial fault lines, using the same flawed design.

If big banks have become too complex to regulate, then a workable Volcker Rule is the best way to start simplifying them. And, if the problem is systemically risky derivatives trading in banks and elsewhere, then the priority given to derivatives traders over nearly every creditor ought to be curtailed.

MILAN The world s developed economies, of which the United States is by far the largest and systemically most important, face a range of difficult political and social choices. President Barack Obama s proposed US budget acknowledges and addresses those choices and tradeoffs directly and fully for the first time in the post crisis period.

Nationalization also resolves the too big too fail problem of banks that are systemically important, and that thus need to be rescued by the government at a high cost to taxpayers. Indeed, the problem has now grown larger, because the current approach has led weak banks to take over even weaker banks.

This multi speed economic performance will contribute to multi track central banking, as pressure for divergent monetary policies intensifies, particularly in the systemically important advanced economies. The US Federal Reserve, having already stopped its large scale purchases of long term assets, is likely to begin hiking interest rates in the third quarter of 2015.

Big banks ability to extort such an arrangement stems from an implicit threat the financial sector and with it the economy s payment system would collapse if a systemically important bank were ever pushed into insolvency. But it is time to call the bankers bluff maintaining the payment system can and should be separated from the problem of bank insolvency.

In the UK, a Financial Policy Committee within the Bank of England is to monitor the systemic risk of financial failure, with a Prudential Regulatory Authority supervising systemically important institutions. According to monetary economist Charles Goodhart, a significantly faster than normal growth rate for bank credit, house prices, and leverage will give the authorities sufficient warning of impending crisis.

Such crises cause major negative demand shocks, as excess debt and falling asset prices damage balance sheets, which then require increased savings to heal a combination that is lethal to growth. If the crisis occurs in a systemically important economy such as the US or Europe (emerging economies' two largest external markets) the result is a global shortage of aggregate demand.

Numerous policy options to deal with this problem are now being debated. These include higher capital ratios for systemically important banks, stricter supervision, limits on trading activity, pre designated resolution and recovery plans, and taxes aimed not at getting our money back, but at internalizing externalities that is, making those at fault pay the social costs of their behavior and creating better incentives.

We British are still members of the European Union (at least for the time being), but sometimes our politicians forget that. Sometimes they simply lose patience with the difficulty of agreeing on changes in negotiations that involve 28 countries, which seems especially true of financial reform, given that many of these countries are not home to systemically important banks and probably never will be.

This would mean much larger core equity capital for all banks and a range of additional reserves a capital conservation buffer, a countercyclical buffer, and a surcharge for systemically vital institutions to be added by local regulators as they see fit. Unfortunately, the final implementation date for these new obligations has been deferred until 2019 by which point a few banks might still be left standing.

Second, after a period of alignment, the monetary policies of these three large and systemically important economies are diverging, taking the world economy from a multi speed trajectory to a multi track one. Indeed, whereas the US Federal Reserve terminated its large scale securities purchases, known as quantitative easing (QE), last month, the Bank of Japan and the European Central Bank recently announced the expansion of their monetary stimulus programs.

Of course, China believes that its own currency, the renminbi, should eventually play a central role in this new monetary system, so that it reflects China s role not only as a leading engine of global economic growth, but also as the world s largest creditor. Indeed, together with the other systemically important economies (the US, the UK, Japan, and the eurozone) China drives trends that, for better or worse, extend far beyond its borders.