Nicolas Véron19 November 2010
The endorsement of the Basel III accord on financial regulation at the recent G20 meetings in Seoul represents one of the event's main outcomes. This column argues that while this initiative should be welcomed, global finance cannot realistically be submitted to a single rulebook and significant challenges remain.
While the noisy arguments about macroeconomic imbalances and exchange rates dominated the publicity at the recent G20 summit, the participants in Seoul also marked an important milestone for financial regulation. They symbolically closed a cycle of intense global discussions that started two years earlier with the first G20 summit in Washington. The most prominent item was the endorsement of the Basel III accord on bank capital and liquidity, which was completed in September. That agreement significantly tightens earlier requirements and provides a convenient opportunity for world leaders to declare “mission accomplished” and move on to other topics.
In many respects, the scope for global financial reform is becoming narrower. In the US, the adoption of the Dodd-Frank Act in July signalled the end of major legislative activity in this field. Most emerging countries are neither willing nor ready to take the baton of global leadership. Formally, several financial regulatory items remain on the agenda. But it was significant that French president Nicolas Sarkozy, who just took over as president of the G20 process, did not mention any of them, apart from commodities markets, in an August speech outlining his priorities (Sarkozy 2010). This stands in striking contrast with two years ago, when financial reform dominated the G20 agenda and many leaders, particularly in Europe, enthused about worldwide harmonisation of financial rules.
The harsh realities of the post-crisis world leave little space for airy rhetoric about radical reinvention of the financial system. The above listed requirements may be seen as defining a fairly narrow agenda. Even so, G20 leaders will deserve much praise if they succeed in meeting them in the next few years.
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Rodrik, Dani (2009), “A Plan B for Global Finance”, The Economist, 12 March.
Rottier, Stéphane and Nicolas Véron (2010), “Not All Financial Regulation Is Global”, Bruegel Policy Brief, September.
Sarkozy, Nicolas (2010), “Discours à la XXVIIIe Conférence des Ambassadeurs”, www.elysee.fr, 25 August.
Véron, Nicolas (2009), “IFRS Sustainability Requires Further Governance Reform”, Bruegel Policy Contribution, 9 December
Nicolas VéronSenior Fellow, Bruegel and Visiting Fellow, Peterson Institute for International Economics
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