In This Review

Safeguarding Financial Stability: Theory and Practice
Safeguarding Financial Stability: Theory and Practice
By Garry J. Schinasi
International Monetary Fund, 2005, 328 pp.

Cross-border integration of capital markets has occurred at a rapid pace in the past two decades. Such integration can improve the allocation of financial capital and better distribute risk, but it also raises serious questions about who is responsible for maintaining or restoring stability in a domain that periodically experiences serious instability. This book, by an International Monetary Fund official, is a sophisticated primer on recent developments in cross-border financial-market integration and on the apparatus that officials have assembled to analyze what is happening and to establish rudimentary ground rules for what should be done in the event of untoward developments in financial markets. Although the topic is specialized, Schinasi's treatment is nontechnical, providing much factual material and an intellectual framework for thinking about what could go wrong and who should be responsible for what. As befits an official of an international organization, he avoids strong critical judgments about countries and events. Especially useful are his attention to financial derivatives, the full implications of which are too little understood, and his chapter on the insurance industry, an important financial sector in many countries where consolidated information is lacking.