POLICY BRIEF NO. 4 APRIL 2013
COORDINATION CRITICAL TO ENSURING THE EARLY WARNING EXERCISE IS EFFECTIVE SKYLAR BROOKS, WARREN CLARKE, MICHAEL COCKBURN, DUSTYN LANZ AND BESSMA MOMANI SKYLAR BROOKS, WARREN CLARKE, MICHAEL COCKBURN, DUSTYN LANZ AND BESSMA MOMANI Skylar Brooks is a student in the University of Waterloo M.A. program in global governance based at the Balsillie School of International Affairs (BSIA). He is also a CIGI junior fellow. Warren Clarke is a Ph.D. candidate in the Wilfrid Laurier University program in global governance based at the BSIA. Michael Cockburn is a student in the Wilfrid Laurier University master’s program in international public policy based at the BSIA. He is also a CIGI junior fellow. Dustyn Lanz is a student in the University of Waterloo M.A. program in global governance based at the BSIA. He is also a CIGI junior fellow. Bessma Momani is associate professor in the Department of Political Science at the University of Waterloo and the BSIA. She is also a senior fellow with The Centre for International Governance Innovation (CIGI) and the Brookings Institution.
KEY POINTS • The Early Warning Exercise (EWE) was designed as a joint program between the International Monetary Fund (IMF) and the Financial Stability Board (FSB) to identify low-probability systemic financial risks. Although cooperation between the IMF and FSB is central to the exercise, this needs to be significantly improved and strengthened to effectively alert and warn of potential crises. • The EWE suffers from unclear goals, a lack of coordination, geographical separation, insufficient organizational capacity and ad hoc procedures. • The EWE requires specific changes to address these shortcomings and would also benefit from a regular publication to boost its visibility and impact.
INTRODUCTION The global financial crisis has shown the need for stronger surveillance and better foresight in financial governance. In 2009, the Group of Twenty (G20) sought to bolster these by initiating the semi-annual EWE. Two international institutions — the IMF and the FSB — were tasked with conducting the EWE. Although the EWE is a critical mechanism for identifying systemic risks and vulnerabilities, several problems constrain its effectiveness. The exercises suffer from unclear goals, a lack of coordination, geographical separation, insufficient organizational capacity and ad hoc procedures.