2009Globalization of banking Industry ~ Restructuring of the Banking and Regulatory Committees ...
BASEL, SWITZERLAND - The power base of the world has shifted…it is no longer in London, New York City, Washington D. C., or Tokyo. Neither is it in Beijing or Moscow. It is Basel, Switzerland. In 1930, the Bank for International Settlements-BIS was set up as a result of the Young Plan which was named after the man who presided over the Allied Reparation Committee, Owen D Young.
Basel was chosen as its location because everyone could get on a train from anywhere in Europe to attend its meetings. When you walk out of the main train station, the BIS is within easy walking distance of one block. A modern 18 story high building belies the power it extends globally. There is nothing about the building that calls anyone’s attention to it other than the plaque near the glass front doors that basically says it is private property. The world’s power brokers walk to the BIS without fanfare and are set apart from the citizenry by their business suit and ID pass.
Yet within its walls the world’s monetary system is being designing and directed by many illuminated and brilliant people from inside and from without, those who visit regularly from all over the world include: central bank ministers, treasury secretaries, regulators, insurance supervisors, deposit insurers and accountants. Truly the BIS is all powerful. Dr. Carroll Quigley in his book, Tragedy and Hope, wrote that,
The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalistic fashion by the central banks of the world acting in concert, by secret agreement, arrived at in frequent meetings and conferences. The apex was to be the Bank for International Settlements in Basel, Switzerland (pp. 324-25).
If this power was not evident before, it is in the process of becoming greater and more immense. While the BIS has always been the focal point of central bank activity globally, it now is finalizing the structure Dr. Quigley wrote about. Bi-monthly, the Group of Ten central bankers, along with those from majoring developing nations come together to discuss global monetary policy, among other things. Over the years it has expanded to the point that every aspect of banking, finance, insurance, deposit insurance, and regulation now constitute its core workings.
In the mid-1990s the word “globalization” came into our vocabularies as we were faced with naming the process whereby the barriers between the countries of the world started to fall. Beginning with the establishment of the International Monetary Fund and World Bank in 1944, the financial barriers between countries fell; with the establishment of the United Nations in 1945, the political barriers fell; with the establishment of the World Trade Organization in 1994, the trade barriers fell; with the establishment of the International Criminal Court in 1998, the legal barriers fell; and with the September 11, 2001 attack on the World Trade Center, the military and intelligence barriers fell.
Similarly, during the 1990s, the Bank for International Settlements started to set up its own level of globalization. In1998, the International Association of Insurance Supervisors was set up and is comprised of insurance supervisors from all over the world. In 1999, the Financial Stability Forum was set up which was comprised of the Group of Seven treasury secretaries, central bankers, and regulatory agencies. Recently this organization was expanded to include the Group of Twenty. Then in 2002 the International Association of Deposit Insurers was set up. This organization is comprised of the “FDICs” of the world. Another organization which was set up in 1973 and then reconfigured in 1984 is the International Organization of Security Commissions-IOSCO which is basically a global “security and exchange” commission which has facilitated a global stock exchange.
What the 2008 Credit Crisis has provided is an opportunity to further enhance and empower these organizations which will and are in the process of transferring respective responsibilities from the national level to the global level, thus completing the process of banking, insurance, auditing, accounting, and regulatory globalization. It should be mentioned that in order for the United States to play its role in this process, the Obama Administration will have to set up a single national regulator over our seven different regulators that currently work independently. This is so important a step that the Financial Times recently ran an editorial on June 20 that warned America,
The need for thorough regulatory reform is still pressing. One concern stands out: the risk of the whole financial system breaking down, as it did last autumn. Those who want to give central banks the power and responsibility to monitor systemic risks are right. They include the US Treasury, whose proposals this week seek to turn the Federal Reserve into a systemic super-regulator. These proposals are contested. They should not be; the alternatives are worse. Reforms to rein in systemic risk must not now fall prey to politics. They must be enacted before the memory of last autumn fades.
Let us examine what the first paragraph of the Bank for International Settlements 79th Annual Report stated with regard to the credit crisis:
How could this happen? No one thought that the financial system could collapse. Sufficient safeguards were in place. There was a safety net: central banks that would lend when needed, deposit insurance and investor protections that freed individuals from worrying about the security of their wealth, regulators and supervisors to watch over individual institutions and keep managers and owners from taking on too much risk. Since August 2007, the financial system has experienced a sequence of critical failures.
While it provides their assessment of what went wrong, the report summarizes the problem and the solution this way:
In summary, financial regulators, fiscal authorities, and central bankers face enormous risks. Building a perfect, fail-safe financial system—one capable of maintaining its normal state of operations in the event of a failure—is impossible. Standing in the way are both innovation and the limits of human understanding, especially regarding the complexity of the decentralized financial world. We have no choice but to take up the challenge of first repairing and then reforming the international financial system.
Their recommendations include the BIS standard-setting committees (the Basel Committee on Banking Supervision, the Central Bank Governance Forum, the Committee on Payment and Settlement Systems, and the Markets Committee) and the Financial Stability Board. For our purposes we will discuss the newly centralized power of the Financial Stability Board.
First it should be noted that with this kind of total economic and monetary failure, the entire system should be scrapped and perhaps we should go back to being individual nation-states, but you see for their purposes, they are expanding and empowering another level of control which will move the assets of the entire world into their domain. No physical war, no guns, no bullets—electronic financial warfare.
The Financial Stability Board was originally the Financial Stability Forum-FSF. When it was set up in 1999, I interviewed its Secretary-General, Svein Andresen who told me that there was no guarantee that it would be able to protect the global system from problems. However, it was believed that if you brought the central bank ministers together with the treasury secretaries and the regulatory agencies from the Group of Seven countries that it would provide a framework to protect the global financial system. Obviously they failed in their mission. The alternative instead of liquidating the FSF was to expand and empower it. When I asked FSB Chairman Mario Draghi about the role and input of the international bankers like Sir Evelyn de Rothschild, he replied,
We are in contact with various --say bankers association, market association—banks, hedge funds, securities fora and lots of other bodies. We look at what they do and then we make up our own mind. So it is an interesting context but in the end, ours is a forum where you have the regulators—banking regulators, market regulators, financial ministries and international organization and institutions and standard setters. So it is our own mind in the end which we look at.
It is important to note that the internationalization or globalization of the financial system is here. It constitutes tearing down the final barrier between the countries of the world. It has been almost fully operational for at least 10 years. At this point in the game, the integration between a handful of international organizations is apparent.
The need to coordinate international accounting through the International Accounting Standards Board with the American counterpart, Financial Accounting Standards Board- FASB with the FSB and G20 is already happening. IOSCO is working with the BIS Joint Forum and FSB. In order to develop high quality international standards for auditing, assurance, ethics and education for professional accountants, the Monitoring Group was set up and a Charter was put in place in 2008 by Memorandum of Understanding. Those participating include: IOSCO, the Basel Committee of Banking Supervision, the European Commission, the International Association of Insurance Supervisors, the World Bank, the Financial Stability Board and the International Forum of Independent Audit Regulators.
Concentrating Total Financial Power at the Bank For International Settlements and the Financial Stability Board
There are those who have been predicting a time when there would appear a world government structure. That time is here. Many, however, have predicted that it would be political in power. That is not necessarily so. Although the United Nations has been an organizing power worldwide to harmonize national law with international law, they do not issue or print money—for that is the role of central banks. With the new and vast empowerments being given to the central banks of the world and with the restructuring of the Financial Stability Board, it appears that world government is financial and economic. The old adage is true, “He who owns the gold makes the rules.”
The entire banking system of the world, with the exception of a few Muslim countries, is run by private corporations called “central banks.” America’s central bank, the Federal Reserve, was founded in 1913. People should understand that it is not Congress which runs America but the Federal Reserve because without the money and credit that it provides to banks and subsequently home owners, farmers, and businesses, would not be able to function. All one has to do is study the various past economic crises to know that they occurred when the national banking system cut off credit. There is no doubt that the 2008 Credit Crisis has helped everyone to see that it is the banks—primarily the international banks and the central banks which run the world. While the names of the shareholders of the Federal Reserve remain secret, many people believe that the large international banks are some of its owners.
As a result of the Credit Crisis, the Bush Administration proposed the “Blueprint for a Modernized Financial Regulatory Structure” which was approved by current Treasury Secretary Timothy Geithner who then was president of the New York Federal. He is now proposing the Obama regulatory blueprint. Recently released, it calls for many of the same recommendations as the previous blueprint, which can be summarized as a total centralization of power:
• A New Financial Services Oversight Council of financial regulators to identify emerging systemic risks and improve interagency cooperation.
• New authority for the Federal Reserve to supervise all firms that could pose a threat to the financial stability, even those that do not own banks.
• Stronger capital and other prudential standards for all financial firms, and even higher standards for large, interconnected firms.
• A new National Bank Supervisor to supervise all federally chartered banks (and other financial institutions currently not under Federal Reserve oversight).
• Elimination of the federal thrift charter and other loopholes that allowed some depository institutions to avoid bank holding company regulation by the Federal Reserve.
• The registration of advisors of hedge funds and other private pools of Capital with the SEC.
Since most are not acquainted with our financial and regulatory structure, they will not appreciate the incredible transfer of power being given to the Federal Reserve, a private corporation. Once Congress passes the necessary law, the Fed will be given massive powers over the entire financial and economic industry, the insurance industry, non-banking institutions as well as the mortgage industry.
While most Americans are hardly aware of the United Nations or World Bank, let alone the World Health Organization, it will be difficult to understand the two-pronged frontal attack: changing U.S. regulatory laws to correspond to global regulatory laws which are in the process of being strengthened and re-configured. The complexity is enormous and the areas affected are hardly known or at this time or truly understood. Sadly, Congress is so busy adjusting their togas, they do not understand that they no longer have the real power as it was given to the Federal Reserve in 1913.
A very major piece of the new international architecture is the newly configured Financial Stability Board-FSB. At the spring meeting of the IMF/World Bank, NWV had asked former BIS Managing Director, Sir Andrew Crockett, now with JP Morgan, what the role, power and function would be of the FSB. He explained that while the chairs were still being arranged at the table, that it would act at the global level to oversee national stability risks, it would work with other regulators, it would review standards set by various board on the national level, and it would employ a ‘college of regulators’ that would define methodologies. At the inaugural meeting held on June 26-27 in Basel, FSB Chairman Mario Draghi, Governor of the Bank of Italy, provided a detailed report on its new structure. He explained,
The FSB’s mandate is to assess vulnerabilities affecting the financial system; identify and oversee action needed to address them; promote coordination and information exchange among authorities responsible for financial stability; monitor and advise on market developments and their implications for regulatory policy; advise on and monitor best practice in meeting regulatory standards; undertake joint strategic reviews on the policy development work of the international standards setting bodies; set guidelines for and support the establishment of supervisory colleges; manage contingency planning for cross-broader crisis management; and collaborate with the IMF to conduct Early Warning Exercises.
The FSB was given an official “plenary” structure which would be like the structure of any other international body, like the plenary of the United Nations. It will be comprised of G20 central bank ministers, treasury secretaries, and regulatory authorities. It will have a Steering Committee and three Standing Committees: for Vulnerabilities Assessment; Supervisory and Regulatory Cooperation; and Standards Implementation.
The Standing Committee for Supervisory and Regulatory Cooperation will address coordination issues that arise among supervisors and regulators and set guidelines for and oversee the establishment and effective functioning of supervisory colleges.
A number of questions have been raised with regard to the college of supervisors which will be a key component of the FSB. In April, 2008, the G7 welcomed the idea of the college of supervisors to make the world’s financial markets less risky. Paulson’s blueprint and his recommendation to bring all of the different U.S. regulatory bodies under one agency is key to making the supervisory colleges work. Many on the international level wanted to be the one responsible for suggesting it, Gordon Brown of the UK being one of them. The supervisory college would monitor the world’s top 30 financial firms in order to have “effective cross-border supervision.” This would be formally agreed to by Memorandum of Understanding which would describe how it will function, be organized and coordinate between supervisors, banks, and countries.
The FSB will be comprised of the Group of Seven plus: Argentina, Australia, Brazil, China, Hong Kong SAR, India, Indonesia, Korea, Mexico, Netherlands, Saudi Arabia, South Africa, Spain, Switzerland, and Turkey. In addition the European Central Bank and the European Commission, as well a host of international financial institutions and international standard setting, regulatory and supervisory groups with participate.
The above constitutes a total restructuring of the entire financial system, mortgage system, insurance industry, non-banking institutions, and any other entity connected with money on a worldwide basis. While the central banks control the monetary system, they are now being given complete centralization of these financial powers. Congress can argue about whether or not they will put all of our regulatory agencies under one roof, but the real truth is that they don’t have the power to do that for “he who owns the gold makes the rules.” The Federal Reserve, along with Treasury has already been playing a major role to help set in place the new financial and regulatory infrastructure.
In short, what comes after this will probably be a global currency that will lead to a time of total control under a cashless system. The BIS would not answer NewsWithViews' questions about a change to the Special Drawing Right from the dollar. BIS Managing Director Jaime Caruana commented, “Repairing the financial system and building a more resilient one for the future also requires broad-based efforts involving cooperation between government and the private sector. At the same time, we need to resist the move towards protectionism; mounting that resistance puts a premium on international cooperation and a heightened sense of shared responsibility.”
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