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G-20 offers financial-market regulation

17 November 2008 13:26 (UTC +04:00)

Baku. Vahab Rzayev â€“ APA-Economics. Leaders of the worldâ€™s biggest developed and emerging nations put banks and investors on notice they will need to keep more capital and reveal more about their holdings, signaling the industry may emerge from the current crisis with less potential for profit, Bloomberg reports.
President George W. Bush and his counterparts from the Group of 20 blamed a looming global recession on imprudent investors who â€œsought higher yields without an adequate appreciation of the risks.â€ Supervisors who failed to address the dangers building in markets were also at fault, the group said in its statement after meeting Nov. 15 in Washington.
The leaders are seeking to correct those failures with their new demands, particularly higher capital standards and stronger risk management at banks, hedge funds and credit-rating firms.
The G-20 also indicated openness to so-called dynamic capital rules, which would oblige lenders to accumulate excess cash during periods of high profit as an added cushion for times when losses increase. Finance ministers were tasked with making recommendations for â€œmitigating against pro-cyclicality in regulatory policy.â€
As banks and securities firms pioneered new products, including subprime mortgage loans and asset-backed securities, their capital levels dwindled compared with historical averages.
A report by the Bank of England last month showed capital ratios at U.S. commercial banks have plunged to less than 10 percent of assets from over half in the mid-19th century.
Just a day after the G-20 authorities suggested they would consider limiting compensation that rewards excessive short-term returns or risk taking â€œthrough voluntary effort or regulatory action,â€ Goldman Sachs Group Inc. announced its seven top executives would forego bonuses this year. Goldman Chief Executive Lloyd Blankfein took home almost $70 million in salary and bonuses in 2007.
The G-20 also urged a â€œbroader policy responseâ€ to slumping growth, citing the potential, if not a promise, for more interest-rate cuts and fiscal stimulus. They pledged not to erect protectionist barriers for 12 months and to devise by year-end a way to conclude the Doha round of trade talks.
Rather than take the same steps together, nations should act â€œas deemed appropriate to domestic conditions,â€ the leaders said in their statement.