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G20 inches forward on financial reform

Stephanie Flanders | 20:46 UK time, Sunday, 27 June 2010

In their Communique, the G20 leaders will for the first time make an explicit commitment to agree new minimum levels of capital for banks in time for the next Summit in Seoul in November.

UK officials say there will be no precise figure until then, but the statement will pledge that the capital buffer that banks are required to hold against future losses will be high enough to have prevented any major bank from needing government support in the financial crisis of 2007-9.

It doesn't sound like much. But it does set limits on where this immensely complicated financial reform effort can end up. There will be a similar commitment to raise bank liquidity standards, and set overall limits on leverage, or borrowing.

As expected, they have not agreed a timetable for introducing the new regulations. There will also be considerable debate on the details - not least, which liabilities will count as capital, and how liquidity is going to be measured.

As Robert Peston has written previously, many Continental European governments are worried about the economic effects of phasing in the new capital requirements too quickly, because European banks come into this with lower levels of capital than their American counterparts.

That debate has not been resolved here - and may yet continue after the Korean Summit in November.

Comments

  • Comment number 1.

    Stephanie:

    Finally, the G-20 is taking steps toward financial reform following the recent downturn in the world...But, I will be waiting for the next summit....

    ~D~

  • Comment number 2.

    Why has it taken two and a half years to agree to do this?

    Why have the banks been allowed to continue on the same risk platform that precipitated the crisis for the last two years?

    Pathetic....

  • Comment number 3.

    Inches....Sounds like climate change agreement

  • Comment number 4.

    Is it not almost as though the G20 hope that by continued procrastination things might somehow sort themselves out?

    It's as though the humiliation of admitting that the Western model has failed is too costly to go through with, and anything, even inaction and interminable delay is better.

    Well, they are right, things really will sort themselves out, and not in any way they might hope for or expect.

  • Comment number 5.

    If the banks were cars, the G20 are advocating uprating the brakes, improving the stability round corners, increasing car tax and providing better crash protection.

    However where are the measures to anticipate problems? Where are the measures to continually stress test banks? Where are the measures to address the problems (apart from Capital adequacy) that caused the crisis in the first place? Where are the measures to scale banks down to a size that can tolerate failure? Where are the measures to separate Casino from Commercial banking?

    In other words where is son of Glass-Steagall?

  • Comment number 6.

    So banks are to simultaneously:

    1. build higher capital reserves
    2. lend more money to get the economy moving
    3. in the UK, pay an as yet unspecified bank levy on their balance sheets to the Exchequer(perfectly reasonable, except in as much as it conflicts with 1+2)

    How exactly are they to do all three and what is their order or priority? If I was a banker, I'd be mightily confused as to how to go about being a 'good' one.

  • Comment number 7.

    Well perhaps armagediontimes was right after all - the revolt will have to come from the street because it certainly ain't coming from our great and glorious leaders. These proposals are just so much chin music. They achieve precisely nothing in terms of starting to rectify the problems.

    They (G20) are like children hiding behind the sofa wishing it will all go away.

  • Comment number 8.

    I would suggest that any commitment made by the G20 is not worth the blog that it is written on.

  • Comment number 9.

    Looks like an irresistible move to fudge the issue which will leave the banks to resume their position in the driving seat and for the rest of us to continue to be exposed to the consequences of their lust to make money for themselves.

  • Comment number 10.

    I wonder who the G20 "brains" think they are kidding, with all their fatuous insistance that we should be growing our way out of the current mess. When will they realise that today's world is very different from even a few decades ago and the concept of continuous global growth which requires us all to continue to buy more and more tat from each other is not only stupid, but downright dangerous? This policy, if we were foolish enough to pursue it, would simply accelerate the demise of the humam race, which is even now more a question of "when" and not "if".
    When they come to their senses, survival will become the hot topic.
    It should be very obvious to us all that the term "sustainable growth", which is one used by politicians and economists, when they want to appear intelligent, is completely meaningless.

  • Comment number 11.

    Stephanie wrote:

    "the economic effects of phasing in the new capital requirements too quickly, because European banks come into this with lower levels of capital than their American"

    But the fact that everyone is acknowledging that there is in essence far too much money floating about the World and that this was one of the causes of the economic collapse is what one would expect. This synthetic money caused the bubbles that (partially) imploded causing the crash. This is an inescapable result of rationally examining what happened.

    The stage we are at in this depression cycle is one where many are still in denial. The fake money created in the late 1920s, by being able to buy on margin, was unwound quite quickly and that is why the 1930's recovery was relatively quick. (unlike the 1870's) This debt deflation collapsed the bubble, but it also enabled the recovery, by freeing up the assets to enable such a recovery to happen. This has to happen now for us to recover. Countries that grasp the horns of the dilemma and act first may possible emerge first. The one huge error would be to transfer public debt into private debt and this must be avoided at all costs.

    (For example: it would be better for the future to halve the number of students at university, but to give them a reasonable maintenance grant and pay their fees. Rather than maintaining the student numbers and charging high fees giving rise to a huge increase in private debt. My guess is however that those kiddies running the economy can't think this through and will continue to cripple the country!)

  • Comment number 12.

    #4 Oblivion. You are looking in the wrong place, and being ably misdirected by the media.

    The Pentagon has confirmed that the USS Harry Truman carrier battlegroup has joined the USS Eisenhower carrier battlegroup off Iran. The Gulf Daily News reports that Israel is preparing an assault from bases in Georgia and Azerbaijan.

    There is nothing new under the sun. This only ends one way. I wonder what will be the effect on British house prices?

  • Comment number 13.

    12

    As your revolution on the streets of Britain campaign has failed, I see you now move on to WW3

    You really are a destruction freak

    If you really want to share your childish fantasies, try North Korea

    Far more likely to happen, and far more dangerous if it does


  • Comment number 14.

    As Robert Peston has written previously, many Continental European governnments are worried about the economic effects of phasing in the new capital requirements too quickly, because European banks come into this with lower levels of capital than their American counterparts.
    ------------------------------------------------------------------
    Surely this is not a problem; your capital reserves as a Bank will be proportional to your total capitalisation?

    When my Dad was a lad, before the war, not long after computers were invented, the BoE had set rules for how a Bank could hold all its assets and liabilities. It also had strong inspection powers and could walk into a Bank without notice and ask to see the books!

    Boy! Did bankers behave themselves in those days?!

  • Comment number 15.

    But the point is what can you count as 'capital'.... Ask them in Basel.

  • Comment number 16.

    Inching forward and making sure the foxes have plenty of time to retreat and regroup in good order.

  • Comment number 17.

    http://www.pinknews.co.uk/2010/04/07/trans-woman-may-sue-over-half-completed-surgery/



    Which just about sums up Britains economic plight after the dynamic do owe booby boys runninngk sillycon valley decide that their goose once forever on the up and up in the private sector is for the chop as well as their golden eggs

    We need something to go with the booby prized trainsinvestors that run the financial inkusdry which will of course be the G20 inching closer with their comic cuts and the man from the fed with his big chopper looking to short the market.

 

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