She pointed out signs that markets around the world have become more correlated, with around three-quarters of equity and foreign exchange returns in both advanced and emerging market economies now attributable to international factors, according to the International Monetary Fund.
Foreign and domestic rates of lending growth played a roughly equal role in a country’s risk of a crisis, based on the Bank’s study of 38 advanced and emerging countries between 1970 and 2011, she said.
Regulators around the world have recently co-operated on tighter rules for bank capital, under the Basel III regulations, and the G20 nations have picked out companies deemed “globally significant” that are subject to tougher scrutiny, in the hope of preventing a repeat of the 2008 crash.
Dame Minouche said that regulators should be looking beyond their own borders in more cases where it benefits both them and the broader global financial system. Her speech was titled “Think Global, Act Local”, drawing on a theme often used by environmental groups.
The shift away from banks and towards market-based finance has created new vulnerabilities in asset management and capital markets, she argued.
“Although cross-border bank flows have plateaued, in many other ways the global financial system is as interconnected as ever, and that we need to be mindful of spillovers from elsewhere when setting policy,” she said.
The issue of a fragmented rulebook for the world’s increasingly connected financial markets is one that Dame Minouche has explored in several speeches.
Last year, she said “fickle and flighty” cross-border capital flows had left emerging economies particularly susceptible to the whims of large investors.
She is leaving the Bank in February after just over two years of her five-year term to join the London School of Economics.