Or if I may paraphrase the title of Reinhardt and Rogoff’s best-seller, is this time any different? To make it truly different we need to take action. And we need to take action on different battle fields. 3. Adapting risk management to a new economic and financial environment  We need to start adapting our risk management frameworks to a new economic and financial environment. Public authorities need to incorporate the lessons from the crisis into the regulation in a meaningful manner. Among the different regulatory measures that need to be taken to prevent similar crisis in the future let me mention the following: 1.  promoting sound risk management practises and better integrating the risk management function into the decision-making process of agents;  2.  addressing the challenges posed by “too-big-to-fail” institutions and the related moral hazard;  3.  enhancing the global financial infrastructure to make it more robust to crisis, by promoting instruments and initiatives to mitigate counterparty risks and limiting the channels of contagion of firm- or sector-specific shocks;  4.  further encouraging transparency, fair valuation and standardisation in the elaboration of financial statements; and  5.  redesigning regulatory policies and capital requirements to avoid procyclical effects, for instance by introducing dynamic provisioning mechanisms as well as liquidity and funding requirements. The implementation of changes to the international banking regulatory standards as proposed in the Basel III accord will represent a key milestone in this regard.

It is, of course, conceivable that these imbalances will prove to be relatively short lived. They might be driven by underlying influences that prove to be largely temporary – for example an investment overhang in East Asia, which is eventually worked off, or a purely cyclical divergence in growth rates between major regions, or a short lived spike in world oil prices. But at the moment there is little sign of this – rather the reverse. It is therefore worth reflecting whether today’s international monetary system (IMS) is sufficiently robust to ensure that global imbalances can be financed, contained or corrected through the normal mechanism of market forces, without crisis; or failing that, whether institutional arrangements exist to resolve collective action problems and conflicting priorities without damage to the wider world economy. There are three key features of today’s IMS which are particularly relevant in thinking about this question. The first is financial globalisation which has totally transformed the landscape over the past two decades. Total financial wealth has risen sharply relative to GDP; and investors are now able and willing to hold a higher proportion of their portfolios in external assets. The trend to larger external asset and liabilities has been particularly significant in industrial countries, whose external assets and liabilities relative to output roughly tripled between 1990 and 2003, reaching average levels of more than 200 per cent of GDP. This has two effects. First, the expansion in external balance sheets has relaxed the constraints on the financing of countries’ savings and investment imbalances.