Business | Economy
G20 calls for overhaul of financial rules
World leaders agree to shore up a global economy sliding into recession, and lay out regulatory proposals.
- Bloomberg
- Published: 10:08 November 16, 2008
- Image Credit: AP
- King Abdullah Bin Abdulaziz of Saudi Arabia (left) and French President Nicolas Sarkozy attend the G20 summit at the White House.
Washington: World leaders have agreed to move decisively to shore up a global economy sliding into recession, and laid out regulatory proposals to prevent a recurrence of the financial crisis.
The Group of 20 on Saturday urged a "broader policy response," citing the potential for additional interest-rate cuts and fiscal stimulus.
Rather than take the same steps together, nations should act "as deemed appropriate to domestic conditions," the leaders said in their statement.
The group pledged not to erect new trade barriers, guaranteed more resources for the International Monetary Fund if needed and promised to meet again before May.
The group set a March deadline for recommendations on strengthening accounting standards, derivatives markets and oversight of hedge funds and debt-rating companies.
Analysts, however, were sceptical. They said the lack of any specific pledges to stimulate growth may disappoint some investors.
"This isn't a strong action statement on addressing the matters at hand," said Carl Weinberg, chief economist at High Frequency Economics Ltd. in Valhalla, New York.
Markets may be vulnerable after the weekend meeting because there was no clear pledge for coordinated tax and interest-rate cuts, he said.
Tumbling stock markets and forecasts for a worldwide recession are intensifying pressure on the G20 leaders to act, 15 months after the credit crunch began.
Writedowns and losses totalling $964.6 billion at financial institutions have triggered a surge in the cost of credit, cutting off access to capital for consumers and companies.
The euro-area fell into its first recession in 15 years in the third quarter and data suggests the US, Japan and UK have as well.
The G20 leaders, representing 90 per cent of the world economy, blamed the crisis on investors who "sought higher yields without an adequate appreciation of the risks."
At the same time, the group faulted regulators in developed nations for failing to "adequately appreciate and address the risks building up in financial markets."
The leaders called for the creation of "supervisory colleges" for bank regulators around the world to better to coordinate oversight and share information about activities and risk-taking of international banks.
The leaders directed their finance ministers to work on recommendations for enhancing disclosure by investors and institutions, including hedge funds, of their financial conditions.
Debt-rating companies should be registered, and oversight of their actions strengthened to ensure they provide unbiased information and avoid conflicts of interest.
Accounting standards should be harmonized around the world, the group said, and regulators should consider whether current rules properly value securities, particularly complex, illiquid products, during times of stress.
The leaders endorsed the use of clearinghouses for financial derivatives to back trades and absorb losses in case of a dealer failure.
They also said executive compensation should be managed to "avoid excessive risk-taking," while stopping short of calling for any caps.
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