Reform needed says G20

(CNS): The Leaders of the G20 (the worlds major developing nations) have identified the relentless search for, “higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence” as one of the root causes of the current global financial crises. During an initial summit in Washington this weekend the countries said they were determined to enhance cooperation to restore growth and achieve needed reforms in the world’s financial systems.

In a joint communiqué issued by the leaders drafted at the summit meeting the countries’ financial leaders said they have taken urgent and exceptional measures to support the global economy and stabilize financial markets but that the countries were also seeking reform to help to ensure that a global crisis, such as this one, does not happen again.

“Our work will be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction,”the paper said.

Aside from the greed of seeking ever higher yields the G20 said that other causes of the current crisis included weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage which created vulnerabilities in the system.

“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 innovation, or take into account the systemic ramifications of domestic regulatory actions,” they said.

The G20 also criticized the inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. “These developments, together, contributed to excesses and ultimately resulted in severe market disruption,” they added. “We have taken strong and significant actions to date to stimulate our economies….but more needs to be done to stabilize financial markets and support economic growth.”

The G20 said they will implement reforms that will strengthen financial markets and regulatory regimes, but as financial markets are global they want to see intensified international cooperation among regulators and strengthening of international standards, where necessary.

“Their consistent implementation is necessary 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. Financial institutions must also bear their responsibility for the turmoil and should

Transparency and accountability, enhancing sound regulation; integrity in financial Markets; international cooperation and the  reform of financial institutions  were the areas the nations agreed to work on. They also cited the need to review and aligning global accounting standards, as well as the strengthening the resilience and transparency of credit derivatives markets and reducing their systemic risks and a commitment to an open global economy.

“We recognize that these reforms will only be successful if 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,” the G20 said. “We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty.”