The G20 Deadline

On both sides of the Atlantic, the looming deadline for the G20 Summit in London on 2 April is driving policymakers to come up with recommendations for global financial reform. The presentation of the de Larosiere “high level group,” which the EU commissioned and is headed by former French central banker Jacques de Larosiere, is now only a couple of days away from presenting its proposals for financial reform legislation. Expectations are that the proposals will be far-reaching. Observers regard the G20 meeting in Berlin over the weekend as part of the build-up of support for the proposals that many still may regard as controversial. The EU’s objective remains to create support for the proposals ahead of the G20 meeting.

At the meeting in Berlin, participants focused on the importance of transparency and accountability on the part of all financial market participants by affirming their conviction that all financial markets, products, and participants must be subject to appropriate oversight or regulation, without exception and regardless of their country of domicile. They agreed this is especially true for those private pools of capital, including hedge funds, that may present a systemic risk. The meeting therefore called for appropriate oversight or regulation of these sectors in order to prevent excessive risk-taking and also agreed that credit rating agencies should be subject to mandatory registration and oversight.

Participants agreed to the following priorities in preparation for the London meeting:

  • Financial stability—The promotion of systemic stability in the global financial markets including the mitigation of the pro-cyclical effects of regulatory measures in order to constrain the amplifying impact of financial market fluctuations on the real economy.
  • Sanctions—Definitive actions against tax havens and uncooperative jurisdictions.
  • Early Warning—The development of an effective early warning system by the International Monetary Fund and Financial Stability Forum, working in close cooperation. The meeting welcomed the steps taken so far to improve cooperation, especially those relating to early warning. The IMF and FSF were asked to present concrete proposals based on this to the IMF Committee and the G20 prior to the IMF Spring Meeting. The results of the early warning exercise should in future be submitted to the International Monetary and Financial Committee and the G20.
  • Compensation—The adoption of principles on compensation practices to prevent bonus payments that contribute to excessive risk-taking.

In the United States, President Obama gave his first major speech to a joint session of Congress on Tuesday night, laying out his broad economic blueprint while also attempting to bolster the national mood following another week of bleak economic news. His administration remains committed to financial reform. In his speech, Obama said,

“Regulations were gutted for the sake of a quick profit at the expense of a healthy market…And all the while, critical debates and difficult decisions were put off for some other time on some other day. Well that day of reckoning has arrived, and the time to take charge of our future is here.”

The president and the Treasury Secretary are scheduled to meet Wednesday afternoon with the Congressional chairmen whose committees oversee financial reform in an effort to jumpstart the process. The more immediate domestic pressures of stemming mortgage foreclosures, stimulating the weak economy, and keeping the financial system on track have monopolized the policy agenda, and Congressional leaders have said they could not develop more than a general outline by 2 April. It will be interesting to see if and how the script changes after they meet with President Obama.

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