- The Washington Times - Sunday, November 9, 2008


As we navigate through the worst U.S. financial crisis since 1907, the U.S. economy will continue to contend with the threat of a global recession. There is an urgent need for coordination of national and international regulatory reforms — reforms that will strengthen the global regulatory system to prevent it from happening again.

President Bush will host the Nov. 15 Group of 20 summit with heads of state to assess the effectiveness of the international response to the current financial crisis and focus on policy coordination between countries to work on strengthening the global regulatory system. As an association that has discussed the need for regulatory reform for the last two years, the Financial Services Roundtable puts forth the following principles to serve as a compass for the journey forward.

We urge the G-20 heads of state to consider the following seven principles as the starting point for all subsequent international policy coordination.

1. Balance competitive markets and effective regulation — All nations should affirm the importance of competitive and innovative markets in meeting the financial needs of consumers and businesses. While recent market events have demonstrated a need for better, more effective regulation of financial markets and firms, excessive regulation can stifle innovation that benefits consumers and also hinder economic growth. Future policies need to strike an appropriate balance between competitive financial markets and effective regulation.

2. Create market stability regulator — Each nation should create a market stability regulator to monitor financial market developments, implement early warning systems and share information with their fellow regulators on a global scale. It is impossible to predict the velocity and exact path of financial storms, but possible to identify early warning signs. Having a single point of reference and responsibility for broad financial market developments — including crisis warning signs — within each country would be an important first step.

3. Adopt principles-based regulation and supervision — Each nation should adopt basic guiding principles to ensure effective regulation and uniform, prudential supervision. At a minimum, such principles should address consumer protection, fair competition and sound risk management. Based on an extensive review of a Blue Ribbon Commission chaired by James Dimon, chairman and chief executive officer of J.P. Morgan Chase, and Richard Kovacevich, chairman of Wells Fargo, the Roundtable has drafted six guiding principles that we believe should be enacted into U.S. law. These same principles could easily form the basis for an international accord signed by all nations that would help to ensure better regulatory outcomes and behavior.

4. Ensure international coordination and cooperation — Each nation should designate a single supervisory body to facilitate international coordination and cooperation among national financial regulatory authorities. Better regulatory cooperation and coordination domestically and internationally is critical to compensate for regulatory gaps and deficiencies within governments. By adopting a single point of contact, financial regulators could share information and interact regularly to ensure sound and consistent policies going forward.

5. Promote public-private sector dialogue — All nations should establish a mechanism for the private sector to provide input into regulatory and supervisory policies on an ongoing basis. The financial crises facing all countries were the result of market failures as well as regulatory gaps and deficiencies in many countries, not just the United States.

6. Avoid procyclical regulatory policies — All nations should pursue common regulatory policies that are designed to prevent problems, not exacerbate them. For example, the current policy on mark-to-market accounting is a procyclical policy, which hurts our economy. Existing U.S. and EU mark-to-market standards should be adjusted to the realities of illiquid markets today.

7. Encourage multilateral trade agreements — All nations should agree to restart the Doha round of multilateral trade negotiations. Open trade is an engine of growth for all economies.

If this crisis has taught us anything, it is that we need better, more effective regulation and prudential supervision here at home and abroad. We want better regulatory policies and coordination domestically and internationally, including mechanisms to detect early crisis warning signs. The Roundtable calls for structural regulatory reforms and supports the aforementioned principles. The G-20 should do no less.

Steve Bartlett is president and chief executive officer of the Financial Services Roundtable.

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