Dan Milmo in New York and Mark Tran
guardian.co.uk, Monday November 24 2008 13.20 GMT
Shares around the world rebounded strongly today as traders took heart from the US government's multibillion dollar rescue of Citigroup, the tottering US banking behemoth.
The move gave a big boost to confidence, sending shares sharply higher throughout Europe. The Dow Jones Industrial Average was also expected to move ahead strongly when trading begins later today. Citigroup shares surged more than 30% in pre-market trading, to $5.07.
By 1pm, the FTSE 100 index, which suffered its third worst week ever last week, was trading 176 points higher, a jump of almost 5%.
In an effort to shore up confidence in America's crumbling financial system, the US government has taken a $20bn (£13.4bn) stake in the bank. Its shares surged more than 30% in pre-market trading on Wall Street this afternoon.
The US treasury secretary, Henry Paulson, and the Federal Reserve chairman, Ben Bernanke, worked with officials throughout the weekend on the lifeline for the institution whose collapse would have wreaked havoc on the US economy.
The New York Federal Reserve board president, Timothy Geithner, who is expected to be nominated later today to succeed Paulson as treasury secretary, also was closely involved.
"With these transactions, the US government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy," the authorities said in a statement issued late last night. "We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks."
The $20bn cash injection by the treasury will come from the $700bn US financial bail-out package. The move follows an earlier $25bn infusion in Citigroup for which the government received an ownership stake.
As part of the plan, the treasury and the Federal Deposit Insurance Corporation will guarantee against the "possibility of unusually large losses" on up to $306bn of risky loans and securities backed by commercial and residential mortgages.
Under the loss-sharing arrangement, Citigroup will assume the first $29bn in losses on the risky pool of assets. Beyond that amount, the government would absorb 90% of the remaining losses, with Citigroup absorbing 10%.
The agreement places restrictions on executive compensation, including bonuses, and calls on Citigroup to take steps to help distressed homeowners.
The move is the latest in a string of high-profile government bail-outs. The Fed provided financial backing to JPMorgan Chase's buyout of ailing Bear Stearns in March. Six months later, the government was forced to take over mortgage giants Fannie Mae and Freddie Mac and throw a financial lifeline to the insurance giant American International Group.
Citigroup yesterday ran full-page newspaper adverts in the US to reassure investors and creditors it could survive the latest bout of turmoil in the markets. A slump in Citigroup stock last week saw its shares lose 60% of their value.
Once the world's largest bank, Citigroup's asset base of $2tn is much larger than Lehman Brothers, whose bankruptcy in September led to a deepening of the credit crisis that was threatening to engulf Citigroup.
Citigroup is adamant that the price slump, which has pushed its stock to the lowest point since 1992, is a product of mistaken fears for the strength of its balance sheet. In its adverts, it said financial markets had been tested in "unprecedented ways" this year, but its diversified business model – which ranges from credit cards to transaction services and investment banking – would steer it through the uncertainty. It ended with a clarion call and an unintentional allusion to the exhaustive talks this weekend at Citigroup's Manhattan headquarters: "That's why now, more than ever, you can feel confident that Citi never sleeps."
Mike Mayo, an analyst at Deutsche Bank, believes reserves of $25bn and other resources should cover estimated losses of $50bn on bad loans.
Richard Bove, at Ladenburg Thalmann & Co, said it would take a repeat of the Great Depression to threaten Citigroup's survival.
However, concerns over the US economy are focusing on Citigroup. Sean Egan, at Egan-Jones Ratings, has argued that the bank might need a further $50bn. The fear is that Citigroup will be exposed to more losses if US growth deteriorates severely. Last month, the bank obtained $25bn from the treasury's troubled asset relief programme.
Vikram Pandit, Citigroup's embattled chief executive, has ruled out a break-up, dismissing reports it might sell Smith Barney, its wealth management arm. But it is understood executives have not ruled out a break-up. Market professionals said Citigroup's stock would be hammered again this morning if a deal was not struck with the US government. Joe Saluzzi at Themis Trading said it needed to announce a break-up, management change or restructuring by today. "That would probably continue a rally on Monday morning," he said.
http://www.guardian.co.uk/business/2008/nov/24/citigroup-bailout-banking-sector
Monday, November 24, 2008
Saturday, November 22, 2008
At summit, Bush touts free-trade record
LIMA, Peru (CNN) -- President Bush, in what could be his final overseas trip as president, called on international leaders Saturday to continue his administration's push for free trade despite the global financial crisis.
"One of the enduring lessons of the Great Depression is that global protectionism is a path to global economic ruin," Bush told the annual meeting of the 21-nation Asia-Pacific Economic Cooperation forum in the capital, Lima.
"I recognize I'm leaving office in two months," Bush said as he discussed the Doha trade talks, which were launched in 2001 to help liberalize international trade policies, "but nevertheless, this administration will push hard ... so that Doha can be completed and so we can send a message: We refuse to accept protectionism in the 21st century."
Touting his record on free trade, Bush said, "expanding trade and investment has been one of the highest priorities of my administration.
"When I took office, America had free trade agreements in force with only three nations. Today, we have agreements in force with 14."
Bush said that during his administration, "America's trade with the world has grown from $2.5 [trillion] to $4 trillion, an increase of 60 percent."
Among APEC member nations, he cited Chile and Peru as more than doubling their trade with the United States during his time in office, and trade with China more than tripling.
"Overall, America's trade with APEC nations now accounts for nearly two-thirds of our trade in the world," Bush said.
Bush chided the U.S. Congress, saying it was "extremely disappointing" that lawmakers adjourned without passing new trade agreements between the United States and Colombia, Panama and South Korea.
"I urge all those who support free trade to continue to press the case for the Congress to pass free-trade agreements with Colombia and Panama and South Korea," he said, drawing applause from his audience.
Referring to the global financial crisis, Bush said, "recovering from the financial crisis is going to take time. But we'll recover and, in so doing, begin a new era of prosperity. The nations of APEC have faced tests before. We have risen to meet them together, and we will do so again."
After his speech, Bush met briefly with Russian President Dmitry Medvedev. Russia is a member of APEC. "This will be my last meeting as the sitting president with the leader of Russia," Bush said after the two leaders shook hands.
"We've had our agreements; we've had our disagreements. I've tried to work hard to make it a cordial relationship, though, so that when we need to work together, we can, and when we disagree, we're able to do so in a way that is respectful to our two nations," Bush said.
Medvedev, speaking through an interpreter, responded by saying, "In general, though we do have points of agreement and those points of real differences ... we are prepared for the continuous work, and I view that, in general, our work was successful."
Bush's attendance at the APEC meeting marked his eighth year of meeting with and speaking to economic leaders from a diverse group of countries ranging from Thailand to Mexico, Chile to China.
Bush came to the APEC meeting seeking to build on the results of a historic two-day meeting in Washington this month attended by presidents and prime ministers from 20 countries. At that meeting, world leaders unveiled a set of sweeping plans aimed at tackling the ever-expanding economic crisis, which has roiled financial markets worldwide.
The final 3,600-word announcement from that Group of 20 meeting in Washington endorsed several stimulative measures, including interest rate cuts by central banks around the globe or potential economic stimulus packages.
Leaders who met in Washington also agreed not to raise new trade barriers over the next 12 months and vowed to reach a resolution on the Doha trade talks.
Bush gave the APEC leaders a briefing on the Washington meeting, according to Dan Price, assistant to the president for international economic affairs, and the leaders discussed the issues of the global economic crisis, the Doha trade talks and food aid.
On food issues, Bush noted that the United States has budgeted $5.5 billion in food aid for this year and next, Price said.Price said that all of the other APEC leaders endorsed the measures discussed by the Group of 20 meeting in Washington.
Find this article at:
http://edition.cnn.com/2008/POLITICS/11/22/bush.apec.summit/?iref=mpstoryview
"One of the enduring lessons of the Great Depression is that global protectionism is a path to global economic ruin," Bush told the annual meeting of the 21-nation Asia-Pacific Economic Cooperation forum in the capital, Lima.
"I recognize I'm leaving office in two months," Bush said as he discussed the Doha trade talks, which were launched in 2001 to help liberalize international trade policies, "but nevertheless, this administration will push hard ... so that Doha can be completed and so we can send a message: We refuse to accept protectionism in the 21st century."
Touting his record on free trade, Bush said, "expanding trade and investment has been one of the highest priorities of my administration.
"When I took office, America had free trade agreements in force with only three nations. Today, we have agreements in force with 14."
Bush said that during his administration, "America's trade with the world has grown from $2.5 [trillion] to $4 trillion, an increase of 60 percent."
Among APEC member nations, he cited Chile and Peru as more than doubling their trade with the United States during his time in office, and trade with China more than tripling.
"Overall, America's trade with APEC nations now accounts for nearly two-thirds of our trade in the world," Bush said.
Bush chided the U.S. Congress, saying it was "extremely disappointing" that lawmakers adjourned without passing new trade agreements between the United States and Colombia, Panama and South Korea.
"I urge all those who support free trade to continue to press the case for the Congress to pass free-trade agreements with Colombia and Panama and South Korea," he said, drawing applause from his audience.
Referring to the global financial crisis, Bush said, "recovering from the financial crisis is going to take time. But we'll recover and, in so doing, begin a new era of prosperity. The nations of APEC have faced tests before. We have risen to meet them together, and we will do so again."
After his speech, Bush met briefly with Russian President Dmitry Medvedev. Russia is a member of APEC. "This will be my last meeting as the sitting president with the leader of Russia," Bush said after the two leaders shook hands.
"We've had our agreements; we've had our disagreements. I've tried to work hard to make it a cordial relationship, though, so that when we need to work together, we can, and when we disagree, we're able to do so in a way that is respectful to our two nations," Bush said.
Medvedev, speaking through an interpreter, responded by saying, "In general, though we do have points of agreement and those points of real differences ... we are prepared for the continuous work, and I view that, in general, our work was successful."
Bush's attendance at the APEC meeting marked his eighth year of meeting with and speaking to economic leaders from a diverse group of countries ranging from Thailand to Mexico, Chile to China.
Bush came to the APEC meeting seeking to build on the results of a historic two-day meeting in Washington this month attended by presidents and prime ministers from 20 countries. At that meeting, world leaders unveiled a set of sweeping plans aimed at tackling the ever-expanding economic crisis, which has roiled financial markets worldwide.
The final 3,600-word announcement from that Group of 20 meeting in Washington endorsed several stimulative measures, including interest rate cuts by central banks around the globe or potential economic stimulus packages.
Leaders who met in Washington also agreed not to raise new trade barriers over the next 12 months and vowed to reach a resolution on the Doha trade talks.
Bush gave the APEC leaders a briefing on the Washington meeting, according to Dan Price, assistant to the president for international economic affairs, and the leaders discussed the issues of the global economic crisis, the Doha trade talks and food aid.
On food issues, Bush noted that the United States has budgeted $5.5 billion in food aid for this year and next, Price said.Price said that all of the other APEC leaders endorsed the measures discussed by the Group of 20 meeting in Washington.
Find this article at:
http://edition.cnn.com/2008/POLITICS/11/22/bush.apec.summit/?iref=mpstoryview
Goodbye G7, hello G20
Nov 20th 2008 | WASHINGTON, DC
From The Economist print edition
A bit of good news after a big summit
JUDGED by the hubristic promises that preceded it, the G20 meeting was bound to disappoint. The leaders of the world’s 20 biggest rich and emerging economies, gathered in Washington, DC, on November 15th, did not remake global finance—as some of them had set out to do. Nor, as others had hoped, did they come up with a co-ordinated fiscal boost to counter the deepening global downturn (though they talked of using fiscal measures “to rapid effect”).
And within days even some of their promises looked thin. The five-page communiqué included a solemn pledge that G20 countries would “refrain from raising new barriers” to trade and investment over the next twelve months. Two days later Russia’s government said it would raise tariffs on imported cars. On November 18th India slapped a 5% duty on a number of iron and steel products.
So was it all a waste of time? There are some reasons to think not. For one, this was the first time the leaders of this group of rich and emerging economies—which between them represent almost 90% of global GDP—had gathered for an economic summit. They have already scheduled a follow-up session before April 30th, and the old, rich-only G7 looks increasingly anachronistic.
Fortunately, the G20’s attitude to global finance seems realistic. The communiqué was not a grand manifesto but a pragmatic acknowledgment of the tension between a globalising capital market and national regulation. From the creation of colleges of financial supervisors to oversee the biggest cross-border financial institutions to the development of a single global accounting standard, the G20 leaders set out incremental reforms to the rules of global finance.
They also made clear that the governance of global financial institutions must change. The membership of the Financial Stability Forum, a group of regulators and central bankers charged with the technicalities of financial supervision, is to be broadened. The IMF and World Bank are to be “comprehensively” reformed. It is easy to be cynical. Talk about reforming power within the IMF has gone on for years. But with emerging economies now firmly at the top table of international finance, such an overhaul has become much more likely. Not a new Bretton Woods—but a decisive shift in the old order.
http://www.economist.com/finance/PrinterFriendly.cfm?story_id=12652239
From The Economist print edition
A bit of good news after a big summit
JUDGED by the hubristic promises that preceded it, the G20 meeting was bound to disappoint. The leaders of the world’s 20 biggest rich and emerging economies, gathered in Washington, DC, on November 15th, did not remake global finance—as some of them had set out to do. Nor, as others had hoped, did they come up with a co-ordinated fiscal boost to counter the deepening global downturn (though they talked of using fiscal measures “to rapid effect”).
And within days even some of their promises looked thin. The five-page communiqué included a solemn pledge that G20 countries would “refrain from raising new barriers” to trade and investment over the next twelve months. Two days later Russia’s government said it would raise tariffs on imported cars. On November 18th India slapped a 5% duty on a number of iron and steel products.
So was it all a waste of time? There are some reasons to think not. For one, this was the first time the leaders of this group of rich and emerging economies—which between them represent almost 90% of global GDP—had gathered for an economic summit. They have already scheduled a follow-up session before April 30th, and the old, rich-only G7 looks increasingly anachronistic.
Fortunately, the G20’s attitude to global finance seems realistic. The communiqué was not a grand manifesto but a pragmatic acknowledgment of the tension between a globalising capital market and national regulation. From the creation of colleges of financial supervisors to oversee the biggest cross-border financial institutions to the development of a single global accounting standard, the G20 leaders set out incremental reforms to the rules of global finance.
They also made clear that the governance of global financial institutions must change. The membership of the Financial Stability Forum, a group of regulators and central bankers charged with the technicalities of financial supervision, is to be broadened. The IMF and World Bank are to be “comprehensively” reformed. It is easy to be cynical. Talk about reforming power within the IMF has gone on for years. But with emerging economies now firmly at the top table of international finance, such an overhaul has become much more likely. Not a new Bretton Woods—but a decisive shift in the old order.
http://www.economist.com/finance/PrinterFriendly.cfm?story_id=12652239
G-20 meet underscores gravity of economic crisis
Friday, 11.21.2008, 07:04am (GMT-7)
India Post News Service
WASHINGTON DC: In what appears to have been the biggest and first of its kind global public relations exercise, heads of state of the Group of Twenty met over the weekend in Washington DC at the invitation of President George W Bush to assure economies across the globe that the world is not coming to an end. The overwhelming presence of the international media covering the G20 Summit on Financial Markets and the World Economy held at the National Museum Building in Washington DC, Nov 14-15, underscored the extent and gravity of the economic crisis even as the gathered leaders sought to assure the world of their keenness to find solutions. The G20 countries plus the European Union, together account for almost 90 percent of global GDP.
Little wonder then that the US capital was besieged by the world media as Presidents, Prime Ministers and finance ministers of these nations converged amid serious challenges to the world economy and financial markets, in a cooperative bid to restore global growth and reform world financial systems. With just six weeks of his presidency left, President Bush played the perfect host, facilitating a platform for the gathered leaders rather than taking the lead on the stage. Significantly, the Summit ended with the leaders signing on a declaration, committing to an Open Global Economy, "rejecting protectionism and not turning inward in times of financial uncertainty." And in this regard, the Group of 20 declared that for the next 12 months, they would refrain from imposing any new trade or investment barriers, imposing new export restrictions, and strive to reach an agreement this year on modalities that lead to an ambitious outcome to the Doha Round of World Trade Organization negotiations.
The G20 countries committed to put an initial list of specific measures in an Action Plan that is to be completed by March 31, 2009. Identifying the root causes of the current crisis, the declaration put the responsibility of the crisis squarely on the shoulders of the advanced countries, without necessarily putting the entire blame on the United States, which got away for being the host country - one that is in the process of transitioning to a new administration. The Action Plan is one of the five key objectives achieved by the Summit where the leaders reached a common understanding of the root causes of the global crisis; reviewed actions countries have taken and will take to address the immediate crisis and strengthen growth; agreed on common principles for reforming the financial markets; and asked finance ministers to develop further specific recommendations that will be reviewed by leaders at a subsequent summit; and reaffirmed their commitment to free market principles.
This Summit is the first of a series of meetings to discuss efforts to deal with the present crisis, as well as to address longer-term financial and economic challenges. In terms of participation at this meeting, some had initially proposed that this summit be held among a relatively small group of countries, but President Bush apparently felt it was very important to have a broader mix of countries, both developed and developing, to participate in this discussion. Although the new world order appropriately required the expansion of the members countries, it is not clear if it augurs the end of the G7, the G8, the G8 plus 5 or any other similar grouping.
In addition to the leaders of these countries, the Summit was attended by heads of the World Bank and the International Monetary Fund, as well as the UN Secretary General and the Chairman of the Financial Stability Forum. Root Causes Failure to exercise proper due diligence and seeking of higher yields without adequate appreciation of the risks involved have been found to be the root causes of the current crisis. "Policy makers, regulators and supervisors in some advanced countries did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovations, or take into account the systemic ramifications of domestic regulatory actions," the declaration underscored as a root cause of the current crisis.
The major underlying factors to the current situation were, among others inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes, the declaration said. These developments, together, contributed to excesses and ultimately resulted in severe market disruption, it said. The Summit, however, stuck to the belief that market principles, open trade and investment regimes, and effectively regulated financial markets are still the tried and tested factors for economic growth, job creation and poverty reduction. Of the immediate actions to be taken, the Summit leaders declared that in the face of deteriorating economic conditions worldwide emerging market economies and developing countries be supported, avoid negative spillovers and restore growth through a broader policy response based on closer macroeconomic cooperation.
The leaders agreed that immediate steps could be taken by recognizing the importance of monetary policy support and using fiscal measures as appropriate; providing liquidity to help unfreeze credit markets; and ensuring that the International Monetary Fund (IMF), World Bank and other multilateral development banks (MDBs) have sufficient resources to assist development countries affected by the crisis, as well as provide trade and infrastructure financing. The leaders agreed on common principles to guide financial market reform and pledged that they would continue to take the right steps to get through this crisis. Action Plan Approving an Action Plan that sets forth a comprehensive work plan to implement these principles, the leaders asked their respective finance ministers to work to ensure that the Action Plan is fully and vigorously implemented.
The Plan includes immediate actions to:
* address weaknesses in accounting and disclosure standards for off-balance sheet vehicles;
* ensure that credit rating agencies meet the highest standards and avoid conflicts of interest, provide greater disclosure to investors, and differentiate ratings for complex products;
* ensure that firms maintain adequate capital, and set out strengthened capital requirements for banks' structured credit and securitization activities;
* develop enhanced guidance to strengthen banks' risk management practices, and ensure that firms develop processes that look at whether they are accumulating too much risk;
* establish processes whereby national supervisors who oversee globally active financial institutions meet together and share information; and
* expand the Financial Stability Forum to include a broader membership of emerging economies. The leaders further instructed respective finance ministers to make specific recommendations in the following areas: Avoiding regulatory policies that exacerbate the ups and downs of the business cycle; Reviewing and aligning global accounting standards, particularly for complex securities in times of stress; Strengthening transparency of credit derivatives markets and reducing their systemic risks; Reviewing incentives for risk-taking and innovation reflected in compensation practices; and Reviewing the mandates, governance, and resource requirements of the IFIs.
There was consensus that needed reforms will be successful only if they are grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems. Reform of Financial Markets Importantly, the group of 20 has adopted the implementation of reforms that will strengthen the markets and regulatory regimes so as to avoid future crises. "Regulation is first and foremost the responsibility of national regulators who constitute the first line of defense against market instability," the declaration said.
However, pointing out the global scope of the financial markets, the group declared that there should be intensified international cooperation among regulators and strengthening of international standards and their consistent implementation to protect against adverse cross-border, regional and global developments affecting international financial stability. Regulators must ensure that their actions support market discipline, avoid potentially adverse impacts on other countries, including regulatory arbitrage, and support competition, dynamism and innovation in the marketplace, the declaration said.
Also, it said that financial institutions must bear their responsibility for the turmoil and should do their part to overcome it including by recognizing losses, improving disclosure and strengthening their governance and risk management practices.
SRIREKHA N. CHAKRAVARTY
India Post News Service
WASHINGTON DC: In what appears to have been the biggest and first of its kind global public relations exercise, heads of state of the Group of Twenty met over the weekend in Washington DC at the invitation of President George W Bush to assure economies across the globe that the world is not coming to an end. The overwhelming presence of the international media covering the G20 Summit on Financial Markets and the World Economy held at the National Museum Building in Washington DC, Nov 14-15, underscored the extent and gravity of the economic crisis even as the gathered leaders sought to assure the world of their keenness to find solutions. The G20 countries plus the European Union, together account for almost 90 percent of global GDP.
Little wonder then that the US capital was besieged by the world media as Presidents, Prime Ministers and finance ministers of these nations converged amid serious challenges to the world economy and financial markets, in a cooperative bid to restore global growth and reform world financial systems. With just six weeks of his presidency left, President Bush played the perfect host, facilitating a platform for the gathered leaders rather than taking the lead on the stage. Significantly, the Summit ended with the leaders signing on a declaration, committing to an Open Global Economy, "rejecting protectionism and not turning inward in times of financial uncertainty." And in this regard, the Group of 20 declared that for the next 12 months, they would refrain from imposing any new trade or investment barriers, imposing new export restrictions, and strive to reach an agreement this year on modalities that lead to an ambitious outcome to the Doha Round of World Trade Organization negotiations.
The G20 countries committed to put an initial list of specific measures in an Action Plan that is to be completed by March 31, 2009. Identifying the root causes of the current crisis, the declaration put the responsibility of the crisis squarely on the shoulders of the advanced countries, without necessarily putting the entire blame on the United States, which got away for being the host country - one that is in the process of transitioning to a new administration. The Action Plan is one of the five key objectives achieved by the Summit where the leaders reached a common understanding of the root causes of the global crisis; reviewed actions countries have taken and will take to address the immediate crisis and strengthen growth; agreed on common principles for reforming the financial markets; and asked finance ministers to develop further specific recommendations that will be reviewed by leaders at a subsequent summit; and reaffirmed their commitment to free market principles.
This Summit is the first of a series of meetings to discuss efforts to deal with the present crisis, as well as to address longer-term financial and economic challenges. In terms of participation at this meeting, some had initially proposed that this summit be held among a relatively small group of countries, but President Bush apparently felt it was very important to have a broader mix of countries, both developed and developing, to participate in this discussion. Although the new world order appropriately required the expansion of the members countries, it is not clear if it augurs the end of the G7, the G8, the G8 plus 5 or any other similar grouping.
In addition to the leaders of these countries, the Summit was attended by heads of the World Bank and the International Monetary Fund, as well as the UN Secretary General and the Chairman of the Financial Stability Forum. Root Causes Failure to exercise proper due diligence and seeking of higher yields without adequate appreciation of the risks involved have been found to be the root causes of the current crisis. "Policy makers, regulators and supervisors in some advanced countries did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovations, or take into account the systemic ramifications of domestic regulatory actions," the declaration underscored as a root cause of the current crisis.
The major underlying factors to the current situation were, among others inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes, the declaration said. These developments, together, contributed to excesses and ultimately resulted in severe market disruption, it said. The Summit, however, stuck to the belief that market principles, open trade and investment regimes, and effectively regulated financial markets are still the tried and tested factors for economic growth, job creation and poverty reduction. Of the immediate actions to be taken, the Summit leaders declared that in the face of deteriorating economic conditions worldwide emerging market economies and developing countries be supported, avoid negative spillovers and restore growth through a broader policy response based on closer macroeconomic cooperation.
The leaders agreed that immediate steps could be taken by recognizing the importance of monetary policy support and using fiscal measures as appropriate; providing liquidity to help unfreeze credit markets; and ensuring that the International Monetary Fund (IMF), World Bank and other multilateral development banks (MDBs) have sufficient resources to assist development countries affected by the crisis, as well as provide trade and infrastructure financing. The leaders agreed on common principles to guide financial market reform and pledged that they would continue to take the right steps to get through this crisis. Action Plan Approving an Action Plan that sets forth a comprehensive work plan to implement these principles, the leaders asked their respective finance ministers to work to ensure that the Action Plan is fully and vigorously implemented.
The Plan includes immediate actions to:
* address weaknesses in accounting and disclosure standards for off-balance sheet vehicles;
* ensure that credit rating agencies meet the highest standards and avoid conflicts of interest, provide greater disclosure to investors, and differentiate ratings for complex products;
* ensure that firms maintain adequate capital, and set out strengthened capital requirements for banks' structured credit and securitization activities;
* develop enhanced guidance to strengthen banks' risk management practices, and ensure that firms develop processes that look at whether they are accumulating too much risk;
* establish processes whereby national supervisors who oversee globally active financial institutions meet together and share information; and
* expand the Financial Stability Forum to include a broader membership of emerging economies. The leaders further instructed respective finance ministers to make specific recommendations in the following areas: Avoiding regulatory policies that exacerbate the ups and downs of the business cycle; Reviewing and aligning global accounting standards, particularly for complex securities in times of stress; Strengthening transparency of credit derivatives markets and reducing their systemic risks; Reviewing incentives for risk-taking and innovation reflected in compensation practices; and Reviewing the mandates, governance, and resource requirements of the IFIs.
There was consensus that needed reforms will be successful only if they are grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems. Reform of Financial Markets Importantly, the group of 20 has adopted the implementation of reforms that will strengthen the markets and regulatory regimes so as to avoid future crises. "Regulation is first and foremost the responsibility of national regulators who constitute the first line of defense against market instability," the declaration said.
However, pointing out the global scope of the financial markets, the group declared that there should be intensified international cooperation among regulators and strengthening of international standards and their consistent implementation to protect against adverse cross-border, regional and global developments affecting international financial stability. Regulators must ensure that their actions support market discipline, avoid potentially adverse impacts on other countries, including regulatory arbitrage, and support competition, dynamism and innovation in the marketplace, the declaration said.
Also, it said that financial institutions must bear their responsibility for the turmoil and should do their part to overcome it including by recognizing losses, improving disclosure and strengthening their governance and risk management practices.
SRIREKHA N. CHAKRAVARTY
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