Frameworks for Financial Crisis Management
If there is one thing that anyone can say for certain is that anything can and will happen. We try to be prepared for any situation, but we cannot predict what will happen. Putting a framework in place to is a good step to being as prepared as possible.
Financial instability can never entirely prevented, no matter how hard we try. While one can never be fully prepared for a crisis, being able to act quickly is incredibly important. This ability to act with speed is very essential.
The government must be aware of the complexity of the process of having the authority established to make the decisions and to delegate responsibility. This is the only way that they can have an institutional framework for crisis management.
Even though the unexpected can and will happen, it is best to have channels of inter-agency cooperation, division of labor, and organizational principles. If these are in place it makes it much smoother getting through the financial crisis. It may never go as smoothly as we would hope, but it helps to make it as smooth as possible.
While financial stability can never be certain, there are four key elements that help support financial stability. The first one is competitive market structures in the financial services industry. This industry is populated by well managed firms that have good governance practices. They also have sound risk-management systems; this is the very basic foundation of a very sound financial system.
The next one is a well-designed financial safety nest. This nest prevents the system from collapsing in times of market failure. Then there is the affective regularity and supervisory structure. This minimizes any moral hazards associated with the existence of the official safety net.
The last key element to financial stability is a framework that deals with the inevitable failures of economic entities. This is for both normal times and in crisis times. This means that it is effective restructuring and bankruptcy procedures for corporates, banks and as we have seen by recent events, sovereign government.
While there are many ways to prepare for financial crises you may not always be prepared. There are many things that can and should be done however to get as close to prepared as possible. Going over everything with every member of the team is also essential. Involving the rest of the employees on the details of the plan will help things to run more smoothly in the event of a financial crisis. That way everyone will know what their part is and can do it as soon as they know what is going on. Let us hope that this is how our government is functioning today.