Document Type


Publication Date



The recent financial crisis revealed a massive failure of institutions that populate the world’s capital markets. Banks, investors, ratings agencies, regulators and numerous other players demonstrated that confidence in market responses was misplaced. The loss of faith in capital market institutions has represented a significant hurdle to recovery as financial institutions continue to be wary of one another, and the public is wary of all of them.

Restoring trust in the system requires two distinct pillars of reform. The first pillar, reform of the financial regulatory system, both nationally and globally, has received most of the attention so far. Many organizations, such as the G20, the OECD, the US Treasury, professional bodies, universities and free-standing think-tanks, are assessing proposed reforms of laws and regulations, new roles of regulatory agencies, changes in the supervisory process, and the potential need for a unified and overarching international regulatory system.

The second pillar, reform initiatives and actions by the private sector for the private sector, has been largely ignored to date, as faith in these institutions has been shaken. However, trust in capital markets cannot be restored without the action of private sector institutions. The crisis exposed multiple flaws in the existing system, from the apparent inability of boards of directors to manage risk, to the poor stewardship of institutional investors, to compensation and incentive systems that many suggest may have exacerbated risk. Each of these flaws must be taken seriously and addressed thoughtfully.


Policy Briefing 5