Geithner, G20 ministers want greater global oversight for banks
U.S. Treasury Secretary Timothy Geithner mirrored the concerns of G20 finance ministers during a weekend summit in Paris when the secretary said a "more stable international monetary system" will depend on "stronger oversight of the major global financial institutions and markets." Geithner made those statements after finance ministers endorsed several oversight guidelines for international banks and financial firms classified as systematically important financial institutions, or SIFIs. However, G20 ministers returned to their respective countries without reaching any concrete progress toward establishing said framework. Most of the initiatives remain in consultation with the respective industries, though some hints are being dropped of the creation of a single global financial oversight institution. Such an institution would be years away, in any case. At the last meeting in Seoul in November 2010, ministers concluded that such a framework would likely be necessary to ensure macroeconomic stability between G20 nations, those with the strongest finances in the world. This year is meant to be the year of developing "policies and frameworks," according to the progress report made available Monday. The latest proposed rules come three years after the financial meltdown which was spurred in part by a period of lax mortgage lending at U.S. financial institutions. Because the international banks are interlinked, the G20 ministers want an oversight framework that will raise red flags throughout the global financial system when a systematic risk is detected. As part of their proposal, which is the brainchild of the Financial Stability Board, the ministers recommend more international oversight over global SIFIs, as well as higher capital requirements and greater loss capacities for firms tied to the broader international economy. The report also proposes a robust international structure to reduce the spread of economic instability during financial downturns. The ministers' goal is to eventually get all SIFIs to adopt the regulatory framework proposed by the FSB. Meanwhile, the FSB will establish a peer review council to assess the efforts of SIFIs who choose to adopt the standard, and by the end of the first half of 2011, the FSB will have determined which SIFIs are not "cooperating fully with the evaluation process" or showing compliance with the internationally agreed guidelines, the G20 ministers said in their report. All of this information will be included in a progress report published at a later date. Geithner said the United States is committed to maintaining financial firms that fit within the G20's framework for a stable global economy, but reiterated U.S. concerns that some of the current instability is tied to other issues such as global trade imbalances and unfavorable currency exchange rates. "It is a very complicated undertaking, and we need to be very careful to make sure we create a more level playing field across countries so that financial activity does not migrate to jurisdictions where standards are weaker or less rigorously applied," Geithner said. "We also need to provide participants with as much clarity as we can about the reforms so that the markets have time and opportunity to adjust to them." Geithner added,"These priorities for international monetary reform require agreements on principles, norms and standards for behavior, as well as stronger incentives for encouraging countries to observe those standards. The IMF has to play a central role in this process, providing independent and public assessments of progress toward these objectives." Write to Kerri Panchuk.