As countries around the world get down to the serious work of reforming their financial systems, the need for greater international co-ordination looms large. The imperative to fix the failed regulatory model behind the crisis has been an important driver, but so too is public indignation over the spectacle of outsized bonus payments by banks even as unemployment is rising. Whatever the motive, there is evidence of new thinking in recent financial sector reform proposals that go beyond the technicalities of capital requirements and accounting conventions to tackle excesses in size, complexity and compensation structures.

The complication is that national financial systems are part of a larger global network. While there is a process of collaboration to bridge the problem of local regulators dealing with global banks, many countries are approaching bigger-picture reforms from different directions and at different speeds. In the process, a central lesson of this crisis is being forgotten: that co-ordination works better than unilateralism.

A simple example. A number of countries have decided that foreign banks, even if they are operating as foreign branches, should maintain higher liquidity locally to withstand a potential freeze in access to local funding. On the face of it, this is prudent. But major banks manage their funding and lending risks globally. If banks have to lock up pools of liquidity in every national jurisdiction, their capacity for intermediating capital across borders could fall, and their charges for doing so rise, to the detriment of the world economy. Such considerations need to be thought through and debated at the multilateral level prior to agreeing reforms, even ones that seem perfectly reasonable, in any one particular direction.