Sunday, October 23, 2011

G-20 Finance Ministers and Central Bankers Support Globally Consistent Derivatives Regulation and Int'l Accounting Standards

The G-20 Finance Ministers and Central Bankers have reaffirmed their commitment to implement the regulation of OTC derivatives in a globally consistently and nondiscriminatory manner. This dovetails with the statement by the G-20 Leaders at last year’s Seoul Summit affirming the regulation of the OTC derivatives market reforms is an internationally consistent manner. In the communiqué ending their October 2011 meeting, the finance ministers and central bankers also emphasized their full commitment to achieve a single set of high quality global accounting standards, again aligning with the Leaders’ earlier endorsement of one set of global accounting standards. The Leaders also encouraged the International Accounting Standards Board to further improve the involvement of stakeholders, including the membership of emerging market economies, in the process of setting the global standards, within the framework of the independent accounting standard setting process.

The finance ministers and central bankers also endorsed a comprehensive framework to reduce the risks posed by systemically important financial institutions. This frame work should consist of strengthened regulation, effective resolution regimes, and a vehicle for cross‐border cooperation. They also agreed on initial recommendations and a work plan to strengthen regulation and oversight of shadow banking. The group also debated options for innovative financing, as well as a range of different financial taxes.

At the Seoul Summit last year, the G-20 Leaders reaffirmed that no financial firm should be too big or too complicated to fail and that taxpayers should not bear the costs of resolution. They endorsed the policy framework proposed by the Financial Stability Board to reduce the moral hazard risks posed by systemically important financial institutions and address the too-big-to-fail problem. This requires a multi-pronged framework combining: a resolution framework and other measures to ensure that all financial institutions can be resolved safely, quickly and without destabilizing the financial system and exposing taxpayers to the risk of loss.

The framework also envisions that financial institutions that are globally systemic should have higher loss absorbency capacity to reflect the greater risk that the failure of these firms poses to the global financial system. In the context of loss absorbency, the G-20 Leaders encourage further progress on the feasibility of contingent capital.