Financial Regulation
March 30, 2009
The G20 negotiators have probably spent the bulk of the last four months sitting in airplanes.
The action plan that was agreed on at the first world finance summit in Washington on Nov. 15 encompassed 47 concrete measures that range from a better global financial regulatory body to new rules for executive compensation.
The majority of the items agreed on at the historic meeting in the US capital were supposed to be implemented by the end of March. In the meantime, a proper sideline in "summit tourism" has emerged.
Whether in the European Union, the United Nations or the Southeast Asian association of nations (ASEAN), everyone has been searching for an answer to the question: What should the international financial architecture of the future look like?
German Chancellor Angela Merkel laid out her criteria at a meeting of leading European industrial nations in Berlin at the end of February.
"We all accept that all the financial markets, (financial) products and (market) participants -- including hedge funds, including ratings agencies and other private bidders -- should be subject to a supervisory and regulatory body," Merkel said. "The necessary details of this must be worked out and included as part of the action plan."
The head of the European Central Bank, Jean-Claude Trichet, put it more succinctly.
"Everything has to change," he said, adding that the current crisis has shown that the entire system is too vulnerable and not resistant enough.
Transparency, accountability
The core points of the action plan are meant to address this problem with improved transparency and more accountability on the financial markets, as well as better control and regulation of these markets.
Authorities will, for the first time, be able to impose minimum limits for capital and liquidity on hedge funds in the countries where the funds are active, not where they have their headquarters. Such measures aim to stop these funds from fleeing to unregulated havens such as the Cayman Islands.
These are bitter pills to swallow for British and American fund operators. In the past, they used to just smile lightly when others warned of the dangers of unbridled capitalism. But now there's little doubt that leaders such as new US Treasury Secretary Timothy Geithner mean business.
"Such risks know no national borders," Geithner said. "We have to keep a much stricter eye on things and pass clear rules of play for the international financial system. Comprehensive changes on both the national and international level will demand it."
Germany introduces "risk map"
Germany has introduced what it calls a "risk map" to the international proceedings. It is designed to reflect the situation of all market participants and financial products, and if need be, signal an alarm.
The map will be complemented by a global credit register of all loans above a certain size. Officials have admitted that it will be a tough task to gather all the data needed, but leaders hope such a measure will bring them further down the road to a new order for the global financial system.
Merkel has said she is convinced that important steps will be taken at the G20 summit in London. Following bilateral talks with British Prime Minister Gordon Brown in mid-March, she said she was optimistic.
"With the United States, and with emerging economies like China and India (involved), we'll achieve results that will ensure that, with regulation, with supervision, such a crisis cannot repeat itself," Merkel said.
The litmus test of such big words, however, will be in the details. Accountability, equity monitoring, the international cooperation of supervisory bodies -- to achieve these things, the experts must first do much highly complex detail work that then has to be implemented and coordinated on the national and international level.
The heads of state gathering in London will surely not be at a loss for words to describe their common purpose. Grand statements were already being made following the summit in Washington by people such as EU Commission President Jose Manuel Barroso, who spoke of "laying the foundations for a new global accord."
Author: Henrik Boehme/dc
Editor: Sean Sinico