Slide 10 of 12

The scale of international financial integration is a second key facet of globalization. In fact, 80 percent of all international data flows are generated by the financial services sector. But as financial integration has proceeded, so has financial instability. As the graph shows, the incidence of banking crisis has increased over the past two decades. Many of these crises have been severe—some costing as much as 40% of GDP. One lesson is that short-term capital flows need to be much better managed. A second is that bank regulation needs strengthening, within and across countries. And third is that inter-linked countries can benefit from coordination. These can both minimize the likelihood of crises and contain spillover effects.