Articles in this document:
·
G-20
Releases Statement on Crisis
·
G-20
Statement Following Crisis Talks
G-20 Releases
Statement on Crisis
By TOM BARKLEY
The Wall Street Journal
Group of 20 leaders gathering in Washington to address the
worst crisis since the Great Depression vowed bold action and urged individual
countries to use fiscal and monetary policies "as deemed appropriate"
to support growth and stability.
"Against this background of deteriorating economic
conditions worldwide, we agreed that a broader policy response is needed, based
on closer macroeconomic cooperation, to restore growth, avoid negative
spillovers and support emerging market economies and developing
countries," the final communique said. (Read the
full statement)
The group vowed to help developing countries get access to
financing, including ensuring the International Monetary Fund and other
multilateral development banks have sufficient funding.
The G-20 also agreed to some broad principles on the more
contentious issue of fixing the global regulatory system -such as bringing all
financial markets, products and participants under some level of oversight --
but left most of the details to a future meeting in the spring.
The five principles cover strengthening transparency and
accountability, improving regulation, promoting market integrity, reinforcing
cooperation and reforming international institutions.
In addition, so-called "colleges of supervisors"
will be set up to monitor the world's biggest financial institutions, with a
list of firms to be compiled by the end of March.
For regulators, as well, the statement said they must make
sure their policies maintain market discipline and "avoid potentially
adverse impacts on other countries, including regulatory arbitrage."
But with differences remaining on the scope of any expansion
of the global regulatory system, G-20 finance ministers will be tasked with
developing recommendations on the five principles and other outstanding issues,
such as executive compensation, accounting standards and credit derivatives
markets.
Expectations had been scaled back significantly in recent
weeks for the first-ever G-20 leaders summit, which was first dubbed "Bretton Woods II" in the hopes it would result in an
overhaul of the post-World War II economic order. That's partly due to Mr.
Bush's lame-duck status and the decision by U.S. President-elect Barack Obama
not to take part, though his representatives have been meeting on the sidelines
of the event with foreign heads of state and other ministers.
online.wsj.com
G-20 Statement
Following Crisis Talks
The Wall Street Journal
DECLARATION
1. We, the Leaders of the Group of Twenty, held an initial
meeting in
2. Over the past months our countries have taken urgent and
exceptional measures to support the global economy and stabilize financial
markets. These efforts must continue. At the same time, we must lay the
foundation for reform to help to ensure that a global crisis, such as this one,
does not happen again. Our work will be guided by a shared belief that market
principles, open trade and investment regimes, and effectively regulated
financial markets foster the dynamism, innovation, and entrepreneurship that
are essential for economic growth, employment, and poverty reduction.
Root Causes of the Current Crisis
3. During a period of strong global growth, growing capital
flows, and prolonged stability earlier this decade, market participants sought
higher yields without an adequate appreciation of the risks and failed to
exercise proper due diligence. At the same time, weak underwriting standards,
unsound risk management practices, increasingly complex and opaque financial
products, and consequent excessive leverage combined to create vulnerabilities
in the system. Policy-makers, regulators and supervisors, in some advanced
countries, did not adequately appreciate and address the risks building up in
financial markets, keep pace with financial innovation, or take into account
the systemic ramifications of domestic regulatory actions.
4. Major underlying factors to the current situation were,
among others, inconsistent and insufficiently coordinated macroeconomic
policies, inadequate structural reforms, which led to unsustainable global
macroeconomic outcomes. These developments, together, contributed to excesses
and ultimately resulted in severe market disruption.
Actions Taken and to Be Taken
5. We have taken strong and significant actions to date to
stimulate our economies, provide liquidity, strengthen the capital of financial
institutions, protect savings and deposits, address regulatory deficiencies,
unfreeze credit markets, and are working to ensure that international financial
institutions (IFIs) can provide critical support for
the global economy.
6. But more needs to be done to stabilize financial markets
and support economic growth. Economic momentum is slowing substantially in
major economies and the global outlook has weakened. Many emerging market
economies, which helped sustain the world economy this decade, are still
experiencing good growth but increasingly are being adversely impacted by the
worldwide slowdown.
7. Against this background of deteriorating economic
conditions worldwide, we agreed that a broader policy response is needed, based on closer macroeconomic cooperation, to
restore growth, avoid negative spillovers and support emerging market economies
and developing countries. As immediate steps to achieve these objectives, as
well as to address longer-term challenges, we will:
·
Continue our vigorous efforts and take whatever
further actions are necessary to stabilize the financial system.
·
Recognize the importance of monetary policy
support, as deemed appropriate to domestic conditions.
·
Use fiscal measures to stimulate domestic demand
to rapid effect, as appropriate, while maintaining a policy framework conducive
to fiscal sustainability.
·
Help emerging and developing economies gain
access to finance in current difficult financial conditions, including through
liquidity facilities and program support. We stress the International Monetary
Fund's (IMF) important role in crisis response, welcome its new short-term
liquidity facility, and urge the ongoing review of its instruments and facilities
to ensure flexibility.
·
Encourage the World Bank and other multilateral
development banks (MDBs) to use their full capacity
in support of their development agenda, and we welcome the recent introduction
of new facilities by the World Bank in the areas of infrastructure and trade
finance.
· Ensure that the IMF, World Bank and other MDBs have sufficient resources to continue playing their role in overcoming the crisis.
Common Principles for Reform of Financial Markets
8. In addition to the actions taken above, we will implement
reforms that will strengthen financial markets and regulatory regimes so as to
avoid future crises. Regulation is first and foremost the responsibility of
national regulators who constitute the first line of defense against market instability.
However, our financial markets are global in scope, therefore, intensified
international cooperation among regulators and strengthening of international
standards, where necessary, and their consistent implementation is necessary to
protect against adverse cross-border, regional and global developments
affecting international financial stability. Regulators must ensure that their
actions support market discipline, avoid potentially adverse impacts on other
countries, including regulatory arbitrage, and support competition, dynamism
and innovation in the marketplace. Financial institutions must also bear their
responsibility for the turmoil and should do their part to overcome it
including by recognizing losses, improving disclosure and strengthening their
governance and risk management practices.
9. We commit to implementing policies consistent with the
following common principles for reform.
·
Strengthening Transparency and Accountability:
We will strengthen financial market transparency, including by enhancing
required disclosure on complex financial products and ensuring complete and
accurate disclosure by firms of their financial conditions. Incentives should
be aligned to avoid excessive risk-taking.
·
Enhancing Sound Regulation: We pledge to strengthen
our regulatory regimes, prudential oversight, and risk management, and ensure
that all financial markets, products and participants are regulated or subject
to oversight, as appropriate to their circumstances. We will exercise strong
oversight over credit rating agencies, consistent with the agreed and
strengthened international code of conduct. We will also make regulatory
regimes more effective over the economic cycle, while ensuring that regulation
is efficient, does not stifle innovation, and encourages expanded trade in
financial products and services. We commit to transparent assessments of our
national regulatory systems.
·
Promoting Integrity in Financial Markets: We
commit to protect the integrity of the world's financial markets by bolstering
investor and consumer protection, avoiding conflicts of interest, preventing
illegal market manipulation, fraudulent activities and abuse, and protecting
against illicit finance risks arising from non-cooperative jurisdictions. We
will also promote information sharing, including with respect to jurisdictions
that have yet to commit to international standards with respect to bank secrecy
and transparency.
·
Reinforcing International Cooperation: We call
upon our national and regional regulators to formulate their regulations and
other measures in a consistent manner. Regulators should enhance their
coordination and cooperation across all segments of financial markets,
including with respect to cross-border capital flows. Regulators and other
relevant authorities as a matter of priority should strengthen cooperation on
crisis prevention, management, and resolution.
· Reforming International Financial Institutions: We are committed to advancing the reform of the Bretton Woods Institutions so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness. In this respect, emerging and developing economies, including the poorest countries, should have greater voice and representation. The Financial Stability Forum (FSF) must expand urgently to a broader membership of emerging economies, and other major standard setting bodies should promptly review their membership. The IMF, in collaboration with the expanded FSF and other bodies, should work to better identify vulnerabilities, anticipate potential stresses, and act swiftly to play a key role in crisis response.
Tasking of Ministers and Experts
10. We are committed to taking rapid action to implement
these principles. We instruct our Finance Ministers, as coordinated by their
2009 G-20 leadership (
In consultation with other economies and existing bodies,
drawing upon the recommendations of such eminent independent experts as they
may appoint, we request our Finance Ministers to formulate additional
recommendations, including in the following specific areas:
·
Mitigating against pro-cyclicality in regulatory
policy;
·
Reviewing and aligning global accounting
standards, particularly for complex securities in times of stress;
·
Strengthening the resilience and transparency of
credit derivatives markets and reducing their systemic risks, including by
improving the infrastructure of over-the-counter markets;
·
Reviewing compensation practices as they relate
to incentives for risk taking and innovation;
·
Reviewing the mandates, governance, and resource
requirements of the IFIs; and
· Defining the scope of systemically important institutions and determining their appropriate regulation or oversight.
11. In view of the role of the G-20 in financial systems
reform, we will meet again by
Commitment to an Open Global Economy
12. We recognize that these reforms will only be successful
if grounded in a commitment to free market principles, including the rule of
law, respect for private property, open trade and investment, competitive
markets, and efficient, effectively regulated financial systems. These
principles are essential to economic growth and prosperity and have lifted
millions out of poverty, and have significantly raised the global standard of
living. Recognizing the necessity to improve financial sector regulation, we
must avoid over-regulation that would hamper economic growth and exacerbate the
contraction of capital flows, including to developing countries.
13. We underscore the critical importance of rejecting
protectionism and not turning inward in times of financial uncertainty. In this
regard, within the next 12 months, we will refrain from raising new barriers to
investment or to trade in goods and services, imposing new export restrictions,
or implementing World Trade Organization (WTO) inconsistent measures to
stimulate exports. Further, we shall strive to reach agreement this year on
modalities that leads to a successful conclusion to the WTO's
Doha Development Agenda with an ambitious and balanced outcome. We instruct our
Trade Ministers to achieve this objective and stand ready to assist directly,
as necessary. We also agree that our countries have the largest stake in the
global trading system and therefore each must make the positive contributions
necessary to achieve such an outcome.
14. We are mindful of the impact of the current crisis on developing
countries, particularly the most vulnerable. We reaffirm the importance of the
Millennium Development Goals, the development assistance commitments we have
made, and urge both developed and emerging economies to undertake commitments
consistent with their capacities and roles in the global economy. In this
regard, we reaffirm the development principles agreed at the 2002 United
Nations Conference on Financing for Development in
15. We remain committed to addressing other critical
challenges such as energy security and climate change, food security, the rule
of law, and the fight against terrorism, poverty and disease.
16. As we move forward, we are confident that through
continued partnership, cooperation, and multilateralism, we will overcome the
challenges before us and restore stability and prosperity to the world economy.
Action Plan to Implement Principles for Reform
This Action Plan sets forth a comprehensive work plan to
implement the five agreed principles for reform. Our finance ministers will
work to ensure that the taskings set forth in this
Action Plan are fully and vigorously implemented. They are responsible for the
development and implementation of these recommendations drawing on the ongoing
work of relevant bodies, including the International Monetary Fund (IMF), an
expanded Financial Stability Forum (FSF), and standard setting bodies.
Strengthening Transparency and Accountability
Immediate Actions by
·
The key global accounting standards bodies
should work to enhance guidance for valuation of securities, also taking into
account the valuation of complex, illiquid products, especially during times of
stress.
·
Accounting standard setters should significantly
advance their work to address weaknesses in accounting and disclosure standards
for off-balance sheet vehicles.
·
Regulators and accounting standard setters
should enhance the required disclosure of complex financial instruments by
firms to market participants.
·
With a view toward promoting financial
stability, the governance of the international accounting standard setting body
should be further enhanced, including by undertaking a review of its
membership, in particular in order to ensure transparency, accountability, and
an appropriate relationship between this independent body and the relevant
authorities.
· Private sector bodies that have already developed best practices for private pools of capital and/or hedge funds should bring forward proposals for a set of unified best practices. Finance Ministers should assess the adequacy of these proposals, drawing upon the analysis of regulators, the expanded FSF, and other relevant bodies.
Medium-term actions
·
The key global accounting standards bodies
should work intensively toward the objective of creating a single high-quality
global standard.
·
Regulators, supervisors, and accounting standard
setters, as appropriate, should work with each other and the private sector on
an ongoing basis to ensure consistent application and enforcement of
high-quality accounting standards.
· Financial institutions should provide enhanced risk disclosures in their reporting and disclose all losses on an ongoing basis, consistent with international best practice, as appropriate. Regulators should work to ensure that a financial institution' financial statements include a complete, accurate, and timely picture of the firm's activities (including off-balance sheet activities) and are reported on a consistent and regular basis.
Enhancing Sound Regulation
Regulatory Regimes
Immediate Actions by
· The IMF, expanded FSF, and other regulators and bodies should develop recommendations to mitigate pro-cyclicality, including the review of how valuation and leverage, bank capital, executive compensation, and provisioning practices may exacerbate cyclical trends.
Medium-term actions
·
To the extent countries or regions have not
already done so, each country or region pledges to review and report on the
structure and principles of its regulatory system to ensure it is compatible
with a modern and increasingly globalized financial
system. To this end, all G-20 members commit to undertake a Financial Sector
Assessment Program (FSAP) report and support the transparent assessments of
countries' national regulatory systems.
·
The appropriate bodies should review the
differentiated nature of regulation in the banking, securities, and insurance
sectors and provide a report outlining the issue and making recommendations on
needed improvements. A review of the scope of financial regulation, with a
special emphasis on institutions, instruments, and markets that are currently
unregulated, along with ensuring that all systemically-important institutions
are appropriately regulated, should also be undertaken.
·
National and regional authorities should review
resolution regimes and bankruptcy laws in light of recent experience to ensure
that they permit an orderly wind-down of large complex cross-border financial
institutions.
· Definitions of capital should be harmonized in order to achieve consistent measures of capital and capital adequacy.
Prudential Oversight
Immediate Actions by
·
Regulators should take steps to ensure that
credit rating agencies meet the highest standards of the international
organization of securities regulators and that they avoid conflicts of
interest, provide greater disclosure to investors and to issuers, and
differentiate ratings for complex products. This will help ensure that credit
rating agencies have the right incentives and appropriate oversight to enable
them to perform their important role in providing unbiased information and
assessments to markets.
·
The international organization of securities
regulators should review credit rating agencies' adoption of the standards and
mechanisms for monitoring compliance.
·
Authorities should ensure that financial
institutions maintain adequate capital in amounts necessary to sustain
confidence. International standard setters should set out strengthened capital
requirements for banks' structured credit and securitization activities.
· Supervisors and regulators, building on the imminent launch of central counterparty services for credit default swaps (CDS) in some countries, should: speed efforts to reduce the systemic risks of CDS and over-the-counter (OTC) derivatives transactions; insist that market participants support exchange traded or electronic trading platforms for CDS contracts; expand OTC derivatives market transparency; and ensure that the infrastructure for OTC derivatives can support growing volumes.
Medium-term actions
·
Credit Ratings Agencies that provide public
ratings should be registered.
· Supervisors and central banks should develop robust and internationally consistent approaches for liquidity supervision of, and central bank liquidity operations for, cross-border banks.
Risk Management
Immediate Actions by
·
Regulators should develop enhanced guidance to
strengthen banks' risk management practices, in line with international best
practices, and should encourage financial firms to reexamine their internal
controls and implement strengthened policies for sound risk management.
·
Regulators should develop and implement
procedures to ensure that financial firms implement policies to better manage
liquidity risk, including by creating strong liquidity cushions.
·
Supervisors should ensure that financial firms
develop processes that provide for timely and comprehensive measurement of risk
concentrations and large counterparty risk positions across products and
geographies.
·
Firms should reassess their risk management
models to guard against stress and report to supervisors on their efforts.
·
The Basel Committee should study the need for
and help develop firms' new stress testing models, as appropriate.
·
Financial institutions should have clear
internal incentives to promote stability, and action needs to be taken, through
voluntary effort or regulatory action, to avoid compensation schemes which
reward excessive short-term returns or risk taking.
· Banks should exercise effective risk management and due diligence over structured products and securitization.
Medium -term actions
·
International standard setting bodies, working
with a broad range of economies and other appropriate bodies, should ensure
that regulatory policy makers are aware and able to respond rapidly to
evolution and innovation in financial markets and products.
· Authorities should monitor substantial changes in asset prices and their implications for the macroeconomy and the financial system.
Promoting Integrity in Financial Markets
Immediate Actions by
·
Our national and regional authorities should work
together to enhance regulatory cooperation between jurisdictions on a regional
and international level.
·
National and regional authorities should work to
promote information sharing about domestic and cross-border threats to market
stability and ensure that national (or regional, where applicable) legal
provisions are adequate to address these threats.
· National and regional authorities should also review business conduct rules to protect markets and investors, especially against market manipulation and fraud and strengthen their cross-border cooperation to protect the international financial system from illicit actors. In case of misconduct, there should be an appropriate sanctions regime.
Medium -term actions
·
National and regional authorities should implement
national and international measures that protect the global financial system
from uncooperative and non-transparent jurisdictions that pose risks of illicit
financial activity.
·
The Financial Action Task Force should continue
its important work against money laundering and terrorist financing, and we
support the efforts of the World Bank - UN Stolen Asset Recovery (StAR) Initiative.
·
Tax authorities, drawing upon the work of
relevant bodies such as the Organization for Economic Cooperation and Development
(OECD), should continue efforts to promote tax information exchange. Lack of
transparency and a failure to exchange tax information should be vigorously
addressed.
·
Reinforcing International Cooperation
Immediate Actions by
·
Supervisors should collaborate to establish
supervisory colleges for all major cross-border financial institutions, as part
of efforts to strengthen the surveillance of cross-border firms. Major global
banks should meet regularly with their supervisory college for comprehensive
discussions of the firm's activities and assessment of the risks it faces.
· Regulators should take all steps necessary to strengthen cross-border crisis management arrangements, including on cooperation and communication with each other and with appropriate authorities, and develop comprehensive contact lists and conduct simulation exercises, as appropriate.
Medium -term actions
·
Authorities, drawing especially on the work of
regulators, should collect information on areas where convergence in regulatory
practices such as accounting standards, auditing, and deposit insurance is
making progress, is in need of accelerated progress, or where there may be
potential for progress.
· Authorities should ensure that temporary measures to restore stability and confidence have minimal distortions and are unwound in a timely, well-sequenced and coordinated manner.
Reforming International Financial Institutions
Immediate Actions by
·
The FSF should expand to a broader membership of
emerging economies.
·
The IMF, with its focus on surveillance, and the
expanded FSF, with its focus on standard setting, should strengthen their
collaboration, enhancing efforts to better integrate regulatory and supervisory
responses into the macro-prudential policy framework and conduct early warning
exercises.
·
The IMF, given its universal membership and core
macro-financial expertise, should, in close coordination with the FSF and
others, take a leading role in drawing lessons from the current crisis,
consistent with its mandate.
·
We should review the adequacy of the resources
of the IMF, the World Bank Group and other multilateral development banks and
stand ready to increase them where necessary. The IFIs
should also continue to review and adapt their lending instruments to
adequately meet their members' needs and revise their lending role in the light
of the ongoing financial crisis.
·
We should explore ways to restore emerging and
developing countries' access to credit and resume private capital flows which
are critical for sustainable growth and development, including ongoing
infrastructure investment.
· In cases where severe market disruptions have limited access to the necessary financing for counter-cyclical fiscal policies, multilateral development banks must ensure arrangements are in place to support, as needed, those countries with a good track record and sound policies.
Medium -term actions
·
We underscored that the Bretton
Woods Institutions must be comprehensively reformed so that they can more
adequately reflect changing economic weights in the world economy and be more
responsive to future challenges. Emerging and developing economies should have
greater voice and representation in these institutions.
·
The IMF should conduct vigorous and even-handed
surveillance reviews of all countries, as well as giving greater attention to
their financial sectors and better integrating the reviews with the joint
IMF/World Bank financial sector assessment programs. On this basis, the role of
the IMF in providing macro-financial policy advice would be strengthened.
·
Advanced economies, the IMF, and other
international organizations should provide capacity-building programs for
emerging market economies and developing countries on the formulation and the
implementation of new major regulations, consistent with international
standards.
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