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QUESTIONS

FINANCIAL REGULATION AND THE G20 IS THERE A GAP IN THE GOVERNANCE STRUCTURE? MIKE CALLAGHAN LOWY INSTITUTE. QUESTIONS. How do we assess progress? Is the FSB-G20 relationship right? Is there a gap in governance/accountability structure?. G20 FOCUS ON FINANCIAL REGULATION.

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QUESTIONS

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  1. FINANCIAL REGULATION AND THE G20IS THERE A GAP IN THE GOVERNANCE STRUCTURE?MIKE CALLAGHANLOWY INSTITUTE

  2. QUESTIONS • How do we assess progress? • Is the FSB-G20 relationship right? • Is there a gap in governance/accountability structure?

  3. G20 FOCUS ON FINANCIAL REGULATION • Prior to crisis, unlikely topic for Leaders summit • Was a political response to a financial crisis • Washington G20 summit adopted FSF report. • G20 leaders now associated with detail of FSB

  4. WHERE ARE WE UP TO? • Process and timetable driven • Basel 3 – long-way to go • Less progress on reforming derivative markets • Some banks remain ‘too-big-to fail’ • Insufficient prioritization • Impact analysis carried out ex-post • Insufficient prioritization of agenda • Insufficient attention on need to change behaviour.

  5. How should we assess progress? • Objective-stable and efficient financial system • But how will it look? • Less complex • More transparent • Higher and better quality capital • Risk properly priced • Similar prudential standards for similar risks • Efficient, deep, broad access to finance

  6. NAVIGATING BY SIGHT- Blanchard • No agreed vision what future financial system should look like. • Unsure about right role of securitization, right scope for derivatives, role of market versus banks, role of shadow banking. • Uncertainty and disagreement about effects of capital ratios on funding costs.

  7. PREVENTING NEXT CRISIS: GONE FAR ENOUGH?- • Response to date micro-regulation. • Deeper solutions? - Very large capital requirements - Reduce instability of debt markets - Move to a much simpler, smaller financial system - Substantial taxes on parts of system

  8. IMPACT ON GROWTH? • Are the structural changes resulting in not only a safer system but also one that promotes better economic outcomes? • How to assess the trade-off between safety of the financial system and economic growth. • Need to avoid ‘material unintended consequences’

  9. QUESTIONS • Is the focus on achieving financial stability at ‘any cost’? • Has the process been too process and timetable driven? • Is the prioritization of the reforms appropriate? • Who assesses unintended consequences? • Is there a gap in the governance structure?

  10. NEW MINISTERIAL BODY • G20 FM/ Governors/ regulatory heads PLUS non-G20 members of IMFC ( and HK). • Jointly chaired by chairs FSB and IMFC. • Examine progress in development and implementation of standards and promoting growth • Secretariat- FSB and IMF staff • Meet at IMF Spring and Annual meetings and replace G20 FM meeting. • Joint chairs send report to G20 leaders.

  11. ADVANTAGES • Financial system is important, deserves more dedicated ministerial oversight. • Ministers and Governors can assess ‘higher order’ issues, such as getting the balance right. • Involvement of IMFC addresses legitimacy concerns over FSB. • More effective use of G20 FM time.

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