Without global coordination there is a risk of undermining the process of global reform agreed at the Pittsburgh Summit and the follow-on work of the Financial Stability Board. Furthermore, lack of global coordination will create regulatory arbitrage through an unlevel playing field.
Statement of the IIF Board of Directors on Regulatory Reform and Industry Practices
Washington D.C., January 28, 2010 — The IIF and its members have reaffirmed their strong support for regulatory reform. More effective regulation is an essential ingredient of a more stable financial system and the IIF supports the globally coordinated work taking place under the leadership of the G20, Financial Stability Board and the Basel Committee. There is an equally urgent need to advance improved industry practices in the areas of governance, risk and liquidity management and compensation. Each of these was an area of prior weakness which contributed to the crisis, and the IIF has played a leading role in supporting necessary improvements.
The IIF fully shares the concern of policymakers in reducing excessive risk-taking in the financial system and to tackle the 'too big to fail' problem. Strengthened capital and liquidity requirements, together with improved risk management practices within firms, will have a central role in this and the IIF supports the global focus on these areas as the key to greater stability. The Institute also encourages greater attention to convergent cross-border resolution regimes necessary to achieve the shared goal of ensuring that no institution is seen as too big to fail. The IIF continues to support reform and moderation in compensation practices.
It is understandable that national governments should put forward reform proposals in pursuit of these aims, particularly where these address issues of particular concern in local markets. However, it is of the greatest importance that all proposals be evaluated carefully to ensure that their impact - including on the macro-economy and the functioning of segments of capital and credit markets - be fully understood. Major banks are mindful of the key role that lending to creditworthy borrowers will play in supporting economic recovery.
It is also essential that all new measures be introduced on a globally coordinated basis. Without this there is a risk of undermining the process of global reform agreed by heads of state at the Pittsburgh Summit and the follow-on work of the Financial Stability Board, and of creating the conditions for regulatory arbitrage through an unlevel playing field. In the absence of a coordinated approach, some risk-taking activities may shift to less visible and less comprehensively supervised parts of the financial system, raising questions about the net effect on systemic stability.
© IIF - Institute of International Finance
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