Well governed, sustainable and socially responsible financial corporations: remote or real expectations?

This chapter considers the efficacy of key reforms across the finance sector since the major crisis in 2008, including capital management standards, responsible lending standards, and the establishment of an incremental framework governing systemically important financial institutions. It suggests that in a best-case scenario, these reforms will enhance the survival prospects of finance entities and the continued functioning of financial systems during extreme events without support from public sources. But without more, these reforms, are unlikely to prevent or mitigate many of the most devastating economic and social costs of financial crises and deep recessions on society. Interest rates are still relatively low and continued access to cheap credit in many countries is undermining lending standards and resulting in levels of indebtedness that are unsustainable and that will exacerbate the resilience of governments and populations in coming decades. Moreover, policies introduced to promote financial stability are not preventing an accumulation of systemic risks and the world is ill-prepared for further financial crises and adverse economic shocks. Mounting systemic risks are exacerbated by fragile financial and economic environments in key areas, high levels of private and or public indebtedness in many countries, greater interconnections between finance and economic activities worldwide, a continuing concentration of assets, liabilities and risks across the finance sector, and increasing levels of financial activity relative to the real economy.