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05 October 2010

IIF calls for renewed global coordination to resolve critical economic issues


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Charles Dallara, managing director of the IIF, warned of the damaging impact of regulatory fragmentation. Uncoordinated, inconsistent bank taxes and levies can create competitive distortions and encourage regulatory arbitrage.


Mr Dallara called for urgent action by a core group of the world’s major economies to broker agreements on critical macroeconomic and exchange rate issues. He said, “Sustaining growth and restoring confidence will require not only astute domestic policymaking, but an unprecedented level of multilateral coordination. It will also require action that transcends purely domestic short-term concerns.”
Mr Dallara noted that global financial regulatory reform has reached a critical stage, with the announcement by the Basel Committee on Banking Supervision (BCBS) of revised capital and liquidity proposals that are to be presented to the G20 Summit. If implemented consistently as announced, and depending on how the open issues are addressed, these measures should contribute to building a more resilient global financial system. However, he said, “since the Basel announcement, some national authorities have indicated that they intend to place additional regulatory requirements on firms or to accelerate implementation. These steps are inimical to a balanced and coordinated approach to financial regulatory reform and will increase its economic impact and contribute to further fragmentation. It is also critical for regulators to understand and factor in potential market pressure for accelerated implementation, which itself is likely to be exacerbated by their announcements. Such market pressure will further magnify the economic impact of reforms.”
Mr Dallara added that “more generally, by committing to highly prescriptive measures domestically, national authorities may limit their ability to participate in international negotiations aimed at achieving coordinated approaches. Fragmentation both undermines the process and amplifies the costs of regulatory reform and the G20 should reaffirm their determination to avoid it.”
 
 


© IIF - Institute of International Finance

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