• G-20 Finance Ministers Meet in Washington, as FSB Presents Report on Implementation of G-20 Recommendations
  • May 3, 2010
  • Law Firm: Alston & Bird LLP - Atlanta Office
  • Yesterday, the G-20 Finance Ministers and Central Bankers concluded their meetings in Washington, held in connection with the IMF and World Bank spring meetings.  Following the meeting, the G-20 issued a communiqué reaffirming, among other things, their “strong commitment to our reform agenda on the timelines agreed by Leaders in London and Pittsburgh.” Following the meeting, the Ministers of Finance of South Korea and Canada held a press briefing.

    The communiqué specifically noted that the G-20:

    reaffirmed their commitment to “stronger capital standards, complemented by clear incentives to mitigate excessive risk-taking practices,” with target adoption “by end-2010 [of] internationally agreed rules to improve both the quantity and quality of bank capital and to discourage excessive leverage” and target implementation by the end of 2012.
    supported the work of the Financial Stability Board (FSB) “to develop prudential standards, market infrastructures to contain the propagation of shocks and resolution tools and frameworks for systemically important financial institutions.”
    called on the IMF “for further work on options to ensure domestic financial institutions bear the burden of any extraordinary government interventions where they occur, address their excessive risk taking and help promote a level playing field, taking into consideration individual country’s circumstances.”

    “stressed the importance of achieving a single set of high quality, global accounting standards; implementing international standards with regard to compensation practices -- completing the development of standards for central clearing and trading on exchanges or electronic platforms of all standardized over-the-counter derivative contracts, where appropriate, and reporting to trade repositories of all over-the-counter derivative contracts; and consistent and coordinated oversight of hedge funds and credit rating agencies.”
    “urged progress to deliver on the representation and governance reforms of the International Financial Institutions agreed in Pittsburgh” and “urged the IMF to deliver the quota and governance reforms by the November Seoul Summit.”

    The G-20 leaders did not, however, announce any agreement on bank taxes.
    In connection with the G-20 meetings, the FSB presented a report entitled the “Progress since the St. Andrews meeting in Implementing the G20 Recommendations for Strengthening Financial Stability.” The report “focuses on the policy development work at [the] international level” and describes the implementation of measures at national and regional levels “by FSB member jurisdictions of the G20 and FSB recommendations.”

    In December 2009, the FSB began reviewing the measures adopted by FSB member jurisdictions to implement the FSF Principles for Sound Compensation Practices and their Implementation Standards. The FSB review was completed and published in March 2010. The FSB’s report issued on Friday notes that, in connection with this peer review process, “[s]ignificant changes in regulatory and supervisory frameworks to implement the Principles and Standards have taken place across the FSB membership over the past year and are expected to continue into 2010 and beyond.”

    The report also acknowledges the ongoing FSB national and regional initiatives in place “to strengthen oversight of credit rating agencies” (CRAs).  The FSB cautions, however that in adopting regulatory reform proposals on a national level, policymakers must pay attention “to avoid requirements coming into place in different jurisdictions that fragment rating markets or impose unnecessary burdens on CRAs.”

    Mario Draghi, FSB Chair and Governor of the Bank of Italy, in a letter to the G-20 leaders  emphasized that 2010 and 2011 “will be critical years for the most important pieces of global reform and will largely determine whether we meet the reform objectives and timelines agreed by G-20 Leaders.” Mr. Draghi urged governments to “complete the revamp of the Basel capital framework and the liquidity standard, including the introduction of a leverage ratio and measures such as forward looking provisioning and countercyclical buffers that address the problems of procyclicality” that have been experienced during crisis. On the issue of “too big to fail,” he also noted that the FSB during the G-20 summit in June will present a shortlist of policy recommendations that will seek to “reduce the moral hazard associated with systemically important financial institutions.”