Academic journal article Chicago Fed Letter

International Regulatory Cooperation after the Crisis

Academic journal article Chicago Fed Letter

International Regulatory Cooperation after the Crisis

Article excerpt

The heads of state of a broad coalition of nations, the Group of Twenty (G-20), met in September 2009 in Pittsburgh to chart the course of recovery from the financial crisis and set internationally agreed-upon objectives for the reform of regulatory policy.

In October 2007, as clear signs of financial market turbulence began to emerge, finance ministers and central bank governors from Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States met in Washington, DC, to discuss the situation.2 In the following months, the crisis deepened - Northern Rock, a UK bank, was nationalized; Bear Stearns, facing collapse, was acquired by JPMorgan Chase; and Lehman Brothers filed for bankruptcy. Ultimately, the heads of state of the Group of Twenty (G-20) met in September 2009 in Pittsburgh to agree on objectives for the reform of regulatory policy to limit the extent and impact of future financial crises.

In this Chicago Fed Letter, we discuss the policy objectives established at the Pittsburgh Summit and briefly explain the evolving roles of the Financial Stability Board (FSB), the Committee on Payment and Settlement Systems (CPSS), the International Organization of Securities Commissions (IOSCO), and the OTC Derivatives Regulators' Forum (OTCDRF). We also briefly describe the new supervisory authorities that have been formed in major jurisdictions as a result of legislation enacted to implement the G-20 objectives and some of the new responsibilities they will exercise.

The G-20 response

The heads of state of the G-20 countries held their first summit meeting to address the crisis in November 2008 in Washington, DC. The meeting focused on improving cooperation in key areas, so as to strengthen economic growth, deal with the financial crisis, and lay the foundation for reform to avoid similar crises in the future. The G-20 met again in London in April 2009 and in Pittsburgh that September to consider common objectives for the regulatory response to the financial crisis, which are to be implemented in the G-20 countries by the end of 2012, including changes to the infrastructure for over-the-counter (OTC) derivatives markets.

The G-20 called on the cadre of international agencies and standard-setting bodies for direct action on regulator)7 reform. For example, with regard to capital and liquidity standards, the Basel Committee on Banking and Supervision (BCBS) was given the objective of reaching agreement on a new capital framework; and in September 2010, the Basel III standards for bank capital were published. Similarly, the FSB, in consultation with the IMF, was asked to report to the G-20 finance ministers and central bank governors in October 2010 on recommendations to strengthen oversight and supervision, especially with regard to early identification of risks and principles for intervention.

Financial Stability Forum and Financial Stability Board

The Financial Stability Forum (FSF) was established in 1999 along with the G-20 to promote international financial stability in the wake of the Asian Financial Crisis of the late 1990s. In response to the financial crisis in 2008, the G-20 called for expanding membership in the FSF and for giving it a stronger institutional basis. As a result, the FSF became the FSB in April 2009.

The FSB now includes representatives of governmental agencies and central banks from 24 countries and the European Union, as well as the Bank for International Settlements (BIS), BCBS, Committee on the Global Financial System (CGFS), CPSS, International Association of Insurance Supervisors, International Accounting Standards Board, and IOSCO. The FSB has priman' responsibility for coordinating the actions agreed upon by the G-20.3

Committee on Payment and Settlement Systems

CPSS is a forum for central banks, supported by the BIS.4 The central bank governors of the Group of Ten (G-IO) countries established the Group of Experts on Payment Systems, the predecessor to the CPSS, in 1980. …

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