laurence h meyer : financial stability in emerging markets - what have we accomplished and what remains to be done? remarks by mr laurence h meyer, member of the board of governors of the us federal reserve system, at the center for strategic and international studies, washington, 18 december 2001. * * * economic crises in emerging - market economies were a prominent feature of the economic landscape during the second half of the 1990s. though such crises were by no means a new phenomenon, what brought special attention to the recent episodes was the perception of a heightened possibility of contagion - - the spread outward of pressures from one crisis country to other countries. the risk of such contagion became evident when the collapse of thailand's currency triggered a cascade of crises in other asian emerging markets. pressures could also spread through world financial markets to industrial economies, as happened with the russian financial crisis. in the wake of the asian crises in particular, initiatives were launched on several fronts to improve financial stability in emerging - market economies and thus to reduce the frequency and intensity of future crises. these initiatives have ranged widely, from efforts to improve policymaking in emergingmarket economies in areas such as choice of exchange rate regime and debt management to development of international standards and codes of best practices and to reforms of international financial institutions. today, i venture an assessment of how much progress has been made and how much remains to be done. i believe that there have been improvements in our understanding of the causes of crises, in economic policymaking in emerging - market economies, and in international institutional arrangements. the key to preventing future financial crises is for emerging - market economies themselves to institute sound domestic economic policies and to build robust domestic financial institutions. no improvements in international financial architecture can make up for deficiencies in these crucial areas. reducing contagion and promoting financial stability before i evaluate prescriptions for reducing the likelihood of emerging - market financial crises, i need to examine the causes of such crises. in general, financial crises result from adverse shocks to an already vulnerable economy. external shocks that a robust economy would shrug off can have a disproportionate impact on an economy beset by speculative excesses in asset markets, poor risk management, and inadequate regulation and supervision of the banking system. in broad terms, this describes the asian emerging - market economies in the run - up to their crises in the late 1990s. countries in the region did experience external shocks, including a slump in the semiconductor market and an appreciation of the dollar relative to

rely upon and deteriorating credit, many people find it harder to enter, or stay in, the financial mainstream. in analyzing the state of economic and financial inclusion, the crisis both expanded the number of americans excluded from the economy and dramatically raised the barriers to enter it. bricker, jesse ; brian k. bucks, arthur b. kennickell, traci l mach, and kevin b. moore. 2011. “ surveying the aftermath of the storm : changes in family finances from 2007 to 2009 ( 212 kb pdf ) ” finance and economics discussion series 2011 – 17. see fdic national survey of unbanked and underbanked households ; bucks, brian k., arthur b. kennickell, traci l. mach and kevin b. moore. 2009. “ changes in u. s. family finances from 2004 to 2007 : evidence from the survey of consumer finances, ” federal reserve bulletin, v. 95, pp. a1 – a55. see desmond, tyler and charles sprenger. 2007. “ estimating the costs of being unbanked ( 199 kb pdf ) ” federal reserve bank of boston. see fdic study of overdraft fees. bis central bankers ’ speeches why does financial inclusion matter? broad financial inclusion is essential because it bolsters american consumption and savings, which drives macroeconomic growth. in order to promote efficient economic growth and stability, americans must have safe and affordable access to the tools necessary to function in the modern economy. congress created the federal reserve with a view that it should focus on economic growth, so the federal reserve has a clear interest in promoting a meaningful, broad recovery that is conducted in a safe and viable manner. affordable, transparently priced, and safe financial products and services promote positive outcomes for individual consumers, which in turn supports the growth and stability of the overall financial system. from the standpoint of the individual, financial inclusion serves as a mild counterweight to the growing income and asset inequality in the united states that has deepened since the onset of the economic crisis. while the exact level of inequality is a matter of academic debate, the trend across various measures definitely suggests that economic disparity has increased over the past 30 years and has accelerated in the past decade. this phenomenon appears to be driven primarily by the rapid growth in income and assets for those in the top 1 percent of the distribution, while most everyone else has experienced stagnation. 8 this inequality is destabilizing and undermines the ability