New Global Financial Architecture

Date: 
Wed, Nov 12, 2008
Location: 
Washington, DC
Recap: 

European leaders have called for a new Bretton Woods agreement. G-20 Heads of State will meet on November 15 to discuss measures to improve international financial regulation and supervision with the hope of preventing future financial crises. On November 12, the Bretton Woods Committee organized a meeting New Global Financial Architecture on the eve of the G-20 meeting to consider what kinds of reforms are most needed. The following five expert panelists led the discussion:

Morris Goldstein
Dennis Weatherstone Senior Fellow
Peterson Institute for International Economics

Charles Dallara
Managing Director
Institute of International Finance

T. Timothy Ryan, Jr.
President & Chief Executive Officer
Securities Industry & Financial Markets Association

Gregory Wilson
President
Gregory P. Wilson Consulting

David Smith
Chief Economist
House Financial Services Committee

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The meeting explored the causes of the current crisis; what more needed to be done to end it; and how it could be prevented from happening again. The panelists addressed four main issues:

  1. What specific changes are needed in the international financial architecture?
  2. What needs to be done by national governments; by private financial institutions and by multilateral institutions including the IMF and the Financial Stability Forum?
  3. Where should future responsibility be vested for overseeing continuing efforts at reform? Should this task be left with the G-20, or reassigned to the G-7, the IMF or the Financial Stability Forum?
  4. What governance changes should accompany this responsibility?

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The following points were outlined by each of the Panelists:

Morris Goldstein

  • Monetary policy is not the proper way to deal with asset management;
  • Better coordination with monetary and regulatory policy will lead to better results;
  • GDP fiscal stimulus is needed, as is coordinated intervention; and
  • Central banks should cut interest rates.

Charles Dallara

  • The current stimulus plan has no ceiling;
  • There are constraints with fiscal policy, but over reacting to problems will only put us in a more challenging position;
  • Supervisors need to be smart – injecting capital into the system is not the best solution;
  • The G-20 focus needs to be on reforming regulatory architecture with a framework of harmonization;
  • A global council is needed to coordinate standards worldwide;
  • Industry needs to improve business practices, while agencies need to find counter-cyclical regimes; and
  • Global best practices can help the current situation and local efforts can help ease the issues as well.

Tim Ryan

  • We are in the midst of a crisis and we don't know what went wrong and when;
  • Consumers were over-leveraged and the complexity of the finance industry was unsustainable;
  • There was also accelerated and problematic capital distribution in the global market;
  • Coordination of activities worldwide is essential. The G20 must diagnose the problem and apply a solution based model; and
  • Banks are not meant to hold and store money; capital in the banking system must be improved.

Gregory Wilson

  • Financial crises needs to be managed or else governments will fail;
  • Current situation is the worst financial panic in the USA since 1907;
  • Regulatory issues in the USA are striking. There are no guiding principles and no coordinating structure. No single point of accountability exists;
  • Fundamental reforms in the USA includes new ideas from private sector; global reform includes new regulation and supervision; and
  • Three elements for the G-20 Summit to address include:
    1. Early crisis detection
    2. Better regulatory coordination
    3. Better framework or treaty on financial market principles and conduct.

David Smith

  • Re-making the financial system is vital and the economy must be fixed immediately;
  • The world has a forgetting cycle of about 10 years when it comes to lessons learned;
  • The crisis must be managed without harming reform opportunities; rushing will only lead to mistakes;
  • Guiding principles include:
    1. Regulation of behavior, don't hide
    2. Broad increase in transparency
    3. Coordination with partners and sharing of information.
  • Risk regulators must:
    1. Promptly correct
    2. Be orderly and precise
    3. Be publicly accountable and transparent.

Audio Transcript:

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