New Financial Architecture

From www.weforum.org On January 15, 2009, the World Economic Forum released its initial report from the New Financial Architecture project, “The Future of the Global Financial System: A Near-Term Outlook and Long-Term Scenarios.” The effort was mandated by the World Economic Forum’s investors and financial services communities in January 2008 to explore the driving forces that are shaping the global financial system and how these forces might affect governance and industry structure. Press release Project Steering Committee and executive summary of report (PDF 1.6 MB) Full report “The Future of the Global Financial System” (PDF 11.8 MB) Compendium - Driving Forces (PDF 1.7MB) Key conclusions from phase one report – “The Future of the Global Financial System” The phase one report identifies a near-term industry outlook characterized by an expanded scope for regulatory oversight, back to basics in the banking sector, some restructuring by alternative investment firms and the emergence of a new set of winners and losers. Over the long-term, a range of external forces and critical uncertainties will further shape the industry. In particular, our study found that the pace of power shifts from today’s advanced economies to the emerging world and the degree of international coordination on financial policy are the two most critical uncertainties for the future of the global financial system. The report therefore explores four challenging scenarios. Driving forces and critical uncertainties In phase one of the New Financial Architecture project, the World Economic Forum engaged more than 250 industry practitioners, policy-makers and academics in workshops, interviews and participation in a survey to identify and prioritize the key driving forces expected to shape the future of the global financial system between today and 2020. The engagement process resulted in an inventory of 34 prioritized driving forces (Figure 1). Figure 1: Survey results: prioritization of key driving forces on the future of wholesale financial markets The phase one long-term scenarios were developed using industry facts, figures and forecasts for key underlying driving forces, which are summarized in the following compendium: Key driving forces on the future of the wholesale financial markets Four scenarious for the future of the global financial system Financial regionalism is a world in which post-crisis blame-shifting and the threat of further economic contagion create three major blocs on trade and financial policy, forcing global companies to construct tripartite strategies to operate globally. Fragmented protectionism is a world characterized by division, conflict, currency controls and a race-to-the bottom dynamic that only serves to deepen the long-term effects of the financial crisis. Re-engineered Western-centrism is a highly coordinated and financially homogenous world that has yet to face up to the realities of shifting power and the dangers of regulating for the last crisis rather than the next. Rebalanced multilateralism is a world in which initial barriers to coordination and disagreement over effective risk management approaches are overcome in the context of rapidly shifting geo-economic power. Phase two priorities In phase two of the New Financial Architecture project, the World Economic Forum will work closely with industry stakeholders to delve deeper into the implications of this analysis, with the goal of exploring collaborative strategies and areas of systemic improvement. This will involve an examination of the potential future sources of systemic risk, as well as opportunities to reposition the industry for sustainable, long-term growth in ways that maximize the stability and prosperity of both the financial and real economies. Figure 2: Transition from phase one to phase two The World Economic Forum will be hosting workshops with key stakeholders throughout 2009 January 28 - February 1: Davos-Klosters, Switzerland March (TBC), London, United Kingdom May 14, Dead Sea, Jordan September 10, Dalian, China September (TBC), New York, United States For more information, please contact: Max von Bismarck, Director and Head of Investor Industries, max.vonbismarck@weforum.org Bernd Jan Sikken, Associate Director and Head of Emerging Markets Finance, berndjan.sikken@weforum.org Nicholas Davis, Associate Director, Scenario Planning, nicholas.davis@weforum.org