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Dr. Anthony Elson Author, “Governing Global Finance” Johns Hopkins SAIS-BC November 7, 2011

The Global Financial Crisis and Reform of the International Financial Architecture – A Progress Report. Dr. Anthony Elson Author, “Governing Global Finance” Johns Hopkins SAIS-BC November 7, 2011. The International Financial Architecture. What is it? What is it supposed to do?

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Dr. Anthony Elson Author, “Governing Global Finance” Johns Hopkins SAIS-BC November 7, 2011

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  1. The Global Financial Crisis and Reform of the International Financial Architecture – A Progress Report Dr. Anthony Elson Author, “Governing Global Finance” Johns Hopkins SAIS-BC November 7, 2011

  2. The International Financial Architecture • What is it? • What is it supposed to do? • Overcoming the “Financial Trilemma” • Provision of global public goods • In the light of the crisis, what needs to be fixed to make it work better?

  3. Source: IMF

  4. The IFA & Provision of Public Goods • An effective international adjustment mechanism (IMF) • An International Lender of Last Resort (ILOLR) facility , or global financial safety net (IMF, leading central banks, BIS) • The oversight of global financial system stability (BIS, CGFS, FSB, IMF) • Sound infrastructure to support global capital flows e.g., settlement systems, accounting rules, int’l financial regulation (CPSS, IASB, BCBS, FSB)

  5. The Governance of the IFA • Political Oversight • Shift from G7 to G20 as global steering committee • Is G20 the right body? (“premier forum for internationaleconomic cooperation”) • Inter-agency coordination • Mandate for oversight of capital account transactions • Governance reform of the IMF • Leadership selection • “chairs and shares” – quota determination • FSB (“4th Pillar of Global Economic Governance”) – weak representation, participation, and accountability • Role of “peer review” in IFA and lack of enforcement

  6. The International Adjustment Mechanism • G20 and international policy coordination (“mutual assessment process”) • Key role of IMF for oversight of int’l monetary system and national exchange rate regimes • Improving multilateral/bilateral surveillance • Elevating “peer review” to political body (IMFC) • Introducing pre-qualification for access to Fund financing based on surveillance outcomes • Numerical targets and sanctions for non-compliance

  7. The ILOLR Mechanism • Key role of central bank swaps, expanded IMF lending, and regional facilities (EFSF) in recent crisis; but ad hoc and limited resources • Instituting a Global Stabilization Mechanism (GSM) • Potential need for IMF resources and SDR allocations

  8. Oversight of Financial System Stability • Gap in the IFA for the regulation of capital flows • Strengthening the FSB: broad charter but understaffed; no enforcement power • Mandatory peer review of member regulatory systems linked to IMF/WB FSAPs • Coordination between the FSB and IMF

  9. International Financial Regulation • Strengthening Basel Capital Accord (Basel 3) • Micro-prudential dimension:isnew minimum capital ratio high enough? • Macro-prudential dimension (new): counter-cyclicalcapital buffer; leverage, liquidity and funding ratios; SIFI surcharge • Weakness of 3-pillar approach • Volcker rule and OTC derivative trading • Unfinished business • Financial sector taxes, cross-border resolution authority, role of CRAs, “shadow” banking • Legal and tax incentives for SIFIs • Accounting rules (IFRS & GAAP), dynamic provisioning

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