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The G-7 – the meeting of finance ministers from Canada, France, Germany, Italy, Japan, the United Kingdom, the USA – to start tomorrow in Washington is critical to the future of global financial regulations. Ministers will be concentrating on four issues alone – liquidity, capital, market stability and the regulatory response needed. What can be expected?
In April, the G-7 endorsed a series of Financial Stability Forum (FSF – a BIS forum of central banks, supervisors and treasuries as well as international expert groups) proposals and asked for a 100-day agenda to plan for the implementation of these. Changes will be in the areas of market transparency and disclosure, risk awareness and risk management, capital and regulatory policies, practices regarding the use of credit ratings, and market infrastructure for over-the-counter derivatives products. The FSF will be reporting this progress and the G-7 is set to endorse the inclusion of these in national regulatory regimes.
Both the US’s SEC and Treasury have put out advance statements on the meeting and Treasury Secretary Henry Paulson is calling for a special meeting of the G-20, the economic forum of the emerging nations including India and China, to add to the coordinated effort to reduce market turmoil and improve global regulatory practices.
Whilst government bodies in the US and, belatedly, the EU are tackling the liquidity and capital issues, it is the G-7 and G-20 that will force the pace on the expected changes in transparency, risk and capital regulations. From there will come the pressure, driven by the BIS and the FSF, which will create the new national regulatory requirements that risk managers will be implementing over the next year.
In the meantime a cautiously optimistic opening to Thursday’s markets with small gains in Asia and Europe.
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