G20 Paris summit lays out reform targets
Tuesday February 22 2011 | 06:57 AM

G20 finance ministers have declared they will extend action against globally systemically important financial institutions to other major financial institutions around the world.

At a weekend summit in Paris hosted by the French government, ministers agreed economic indicators to detect worldwide imbalances and vowed to see through recommendations by the Financial Stability Board on over-the-counter derivatives.

"Once the framework initially applicable to G-SIFIs is agreed, we will move expeditiously to cover all SIFIs," a communiqué issued on Saturday stated.

The call follows a demand at the G20 summit in South Korea last November for G-SIFIs to increase their loss absorbency capacity to reflect the greater risk that their failure poses to the global financial system.

Measures on the table include more intensive supervisory oversight, capital surcharges, ensuring cross-border resolution capacity, contingent capital and bail-in instruments as well as systemic levies.

During the two-day summit, finance ministers reiterated that they backed recommendations by the Financial Stability Board on reducing reliance on credit rating agencies, but little concrete action was taken on regulating commodities derivatives.

A progress report by the Financial Stability Board on worldwide financial reforms declared that further action could be necessary to deal with exchange or electronic platform trading and central clearing.

"Further recommendations may be needed to carry out the G20 commitments to exchange or electronic platform trading, central clearing and reporting of OTC derivatives transactions to trade repositories," the FSB report noted.

"One issue to be addressed is ensuring fair and open access, both direct and indirect, to OTC derivatives CCPs. As implementation progresses, inconsistencies may give rise to opportunities for regulatory arbitrage. The FSB will be vigilant in monitoring emerging risks and reporting to the G20 any areas where action needs to be taken."

After lengthy discussions which, amid Chinese intransigence, appeared on the verge of breaking down, economic indicators were agreed to monitor global economic stability. These include public debt and deficits, private debt levels and savings rates and a country's current account.

French finance minister Christine Lagarde said: "The negotiations were frank, sometimes tense, and led to a final compromise which cannot attribute to any one delegation but which I can say represents a spirit of compromise and of ambition."

The communiqué urged all international financial centres not yet compliant with OECD standards to address their weaknesses and extend the signing of tax information exchange agreements.

John Kirton, co-director of the Toronto-based G20 Research Group, however said the summit fell short in a number of areas.

"The finance ministers and central bankers offered the proper prosaic passages on commodity prices and food security but did not integrate their approach with their governance of the economy," Kirton