The White House (Washington, DC)
15 November 2008
(Page 3 of 4)
* 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 March 31, 2009
* 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 March 31, 2009
* 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 March 31, 2009
* 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 March 31, 2009
* 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 March 31, 2009
* 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.
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A very well thought out analysis, though I disagree with “South Africa should support France and Germany in pursuing financial regulatory reform”. While reform is obviously needed, it must be remembered that neither of the mentioned economies would exist in present form, or be any where near as powerful, without having followed the American model; a model not completely right and in need of adjustment, to be sure, but a basis on which the modern world has been built. The words of commenter ‘Mohagany’ as to the electric power required are an absolute : without the power to drive the engines of commerce, any nation so lacking will forever be relegated to secondary, at best, status.
These are good observations. Africa, especially Sub-Saharan Africa should really think of a super electric grid, Europe and Northern Africa is building a Mediterrean Ring electric interconnection. Talk of economic development without an adequate energy infrastructure is a non-starter.
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