Financial markets have recovered substantially but vulnerabilities remain significant. Ample liquidity may lead to new bubbles, particularly in some emerging markets, and uncertainties about government exit strategies and regulatory changes threaten a fledgling upswing. Co-ordination and communication of exit policies will be important, and exit from policy stimulus should not be precipitated at the current juncture. While financial institutions have increasingly obtained market financing and paid back state aid, the sector remains fragile; thus, such voluntary pay-backs should meet preconditions aimed at ensuring the soundness and sustainability of the concerned institutions’ balance sheets. At the same time, expectations of future writedowns and more stringent capital rules put pressure on bank lending more generally. Restarting securitisation to support lending would be important and could be fostered by government initiatives focussing on standardisation, transparency and due diligence to restore investor confidence. Regulatory reforms currently being proposed concern accounting rules, capital requirements and compensation issues. However, further reforms are required to address such systemic issues as moral hazard created by public support. Measures would include resolution mechanisms for large and systemically important banks as well as appropriately fire-walled business structures for the financial sector. Peer pressure via co-operation in international standard-setting and relevant bodies should help to keep the reform momentum, overcome political impediments to reform and maintain a level playing field.