Wednesday, 10 Nov 2010
G20 to Endorse Bank Capital Reforms, Urge Flexible Rates
G20 leaders here in Seoul are expected to endorse a statement calling for more flexible, market-based exchange rates and declaring that no financial institution should be too big or complicated to fail, according to a G20 official involved in the negotiations over the final communiqué.
The official cautioned that the communiqué could change after additional negotiations scheduled for later today and tomorrow but that there is substantial agreement surrounding many of the key items on the agenda.
Among them:
The leaders are expected to endorse wholesale the Basel III banking accords that call for higher and tougher capital requirements for the world's banks.
They will commit to more flexible exchange rates based on market fundamentals and to refrain from competitive devaluation.
Leaders will also endorse the concept "that no firm should be too big or complicated to fail and that taxpayers shouldn't bear the burden of resolution," the G20 official said.
The agreement will also commit the G20 nations to creating special rules governing the world biggest banks by the time the group meets in a year, a move that could have a considerable impact on profits.
A senior international banking official, who asked not to be named, said the agreement will commit all nations to "implement Dodd-Frank style" rules that will allow regulators to restructure banks quickly.
However, it remained unclear what the communiqué would say on the critical issue of large trade imbalances. The G20 official said the issue was to be the subject of negotiations later in the day here.
But as part of the agreement, G20 leaders will likely agree to ensuring that all banks deemed to be systemically important will be forced to have the ability to absorb greater losses than their smaller counterparts. In general, this is thought to mean higher capital charges for the biggest banks, but the precise methods are to be worked out over time.
The communiqué will also call for special rules for the biggest banks that are globally interconnected, as opposed to those who are large but do most of their business domestically.
According to several sources, leaders will endorse language forcing the largest interconnected global banks to devise so-called "living wills", that is, plans for how they can be unwound in the event of insolvency.
The G20 will also call for specific, firm-by-firm agreements between international regulators over how to handle that firm in event of a crisis. Finally, the leaders will agree to a process to ensure that each nation treats their biggest banks according to the same rules, that is, a review process that ensures a level playing field for all the big global banks.
The early draft of the communiqué does suggest that global banks could be required first to have higher capital standards "initially," that is, before the banks that are large but do most of their business domestically. But the G20 official said that the general understanding is that all large banks will have tougher capital rules and that the global banks will not be disadvantaged.
Finance ministers, bank regulators and central bankers, working together under the Financial Stability Board based in Basel, Switzerland, had agreed earlier this year on the Basel III rules that will raise capital requirements for all banks beginning in 2013 and extending through 2019.
But the FSB had essentially tabled the more difficult effort to end the "too big to fail" problem, which entails tougher rules on the biggest banks. The G20 communiqué essentially gives the FSB one year to finalize global rules on too big too fail and resolves only some of the outstanding issues.
Still to be ironed out by the Basel group are the way that bigger banks will be required to absorb greater losses and the method to determine which banks come under the rules.
It was too early to say whether G20 leaders would endorse a commitment for surplus nations to increase domestic demand. Negotiations were still to be held on the issue along with a proposal for the International Monetary Fund to monitor compliance with any agreement on fixing global trade imbalances.
There's considerable skepticism about how much good an agreement over currency will do. Many nations have singled out the US Federal Reserve's resumption of quantitative easing as a major reason why global currencies are in turmoil. US officials for their part have insisted that they have received private support from global leaders and one US official said the criticism over the Fed has been "subdued" at the G20 meeting itself.
http://www.cnbc.com/id/40102664
G20 to Endorse Bank Capital Reforms, Urge Flexible Rates
G20 leaders here in Seoul are expected to endorse a statement calling for more flexible, market-based exchange rates and declaring that no financial institution should be too big or complicated to fail, according to a G20 official involved in the negotiations over the final communiqué.
The official cautioned that the communiqué could change after additional negotiations scheduled for later today and tomorrow but that there is substantial agreement surrounding many of the key items on the agenda.
Among them:
The leaders are expected to endorse wholesale the Basel III banking accords that call for higher and tougher capital requirements for the world's banks.
They will commit to more flexible exchange rates based on market fundamentals and to refrain from competitive devaluation.
Leaders will also endorse the concept "that no firm should be too big or complicated to fail and that taxpayers shouldn't bear the burden of resolution," the G20 official said.
The agreement will also commit the G20 nations to creating special rules governing the world biggest banks by the time the group meets in a year, a move that could have a considerable impact on profits.
A senior international banking official, who asked not to be named, said the agreement will commit all nations to "implement Dodd-Frank style" rules that will allow regulators to restructure banks quickly.
However, it remained unclear what the communiqué would say on the critical issue of large trade imbalances. The G20 official said the issue was to be the subject of negotiations later in the day here.
But as part of the agreement, G20 leaders will likely agree to ensuring that all banks deemed to be systemically important will be forced to have the ability to absorb greater losses than their smaller counterparts. In general, this is thought to mean higher capital charges for the biggest banks, but the precise methods are to be worked out over time.
The communiqué will also call for special rules for the biggest banks that are globally interconnected, as opposed to those who are large but do most of their business domestically.
According to several sources, leaders will endorse language forcing the largest interconnected global banks to devise so-called "living wills", that is, plans for how they can be unwound in the event of insolvency.
The G20 will also call for specific, firm-by-firm agreements between international regulators over how to handle that firm in event of a crisis. Finally, the leaders will agree to a process to ensure that each nation treats their biggest banks according to the same rules, that is, a review process that ensures a level playing field for all the big global banks.
The early draft of the communiqué does suggest that global banks could be required first to have higher capital standards "initially," that is, before the banks that are large but do most of their business domestically. But the G20 official said that the general understanding is that all large banks will have tougher capital rules and that the global banks will not be disadvantaged.
Finance ministers, bank regulators and central bankers, working together under the Financial Stability Board based in Basel, Switzerland, had agreed earlier this year on the Basel III rules that will raise capital requirements for all banks beginning in 2013 and extending through 2019.
But the FSB had essentially tabled the more difficult effort to end the "too big to fail" problem, which entails tougher rules on the biggest banks. The G20 communiqué essentially gives the FSB one year to finalize global rules on too big too fail and resolves only some of the outstanding issues.
Still to be ironed out by the Basel group are the way that bigger banks will be required to absorb greater losses and the method to determine which banks come under the rules.
It was too early to say whether G20 leaders would endorse a commitment for surplus nations to increase domestic demand. Negotiations were still to be held on the issue along with a proposal for the International Monetary Fund to monitor compliance with any agreement on fixing global trade imbalances.
There's considerable skepticism about how much good an agreement over currency will do. Many nations have singled out the US Federal Reserve's resumption of quantitative easing as a major reason why global currencies are in turmoil. US officials for their part have insisted that they have received private support from global leaders and one US official said the criticism over the Fed has been "subdued" at the G20 meeting itself.
http://www.cnbc.com/id/40102664
