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 Financial Reform: A Framework for Financial Stability addresses flaws in the global financial system and provides 18 specific recommendations to: improve supervisory systems by redefining the scope, boundaries, and structure of prudential regulation; enhance the role of the central banks; improve governance practices and risk management; address pro-cyclicality via capital and liquidity standards; enhance accounting practices; strengthen the financial infrastructure; and increase coordination internationally.
FORWARD
In July 2008, the Group of Thirty (G30) launched a project on financial reform under the leadership of a Steering Committee chaired by Paul A. Volcker, with Tommaso Padoa-Schioppa and Arminio Fraga Neto as its Vice Chairmen. They were supported by other G30 members who participated in an informal working group.
All members (apart from those with current and prospective national official responsibilities) have had the opportunity to review and discuss preliminary drafts.
The Report is the responsibility of the Steering Committee and reflects broad areas of agreement among the participating G30 members, who participated in their individual capacities. The Report does not reflect the official views of those in policymaking positions or in leadership roles in the private sector. Where there are substantial differences in emphasis and substance, they are noted in the text. ...
INTRODUCTION
Market economies require robust and competitive financial systems, national and international, to intermediate between those with financial resources and those with productive and innovative uses for those resources. That intermediation necessarily poses risks—risk with respect to bridging maturity preferences of savers and borrowers and risk with respect to creditworthiness.
The process, to be effective, depends on mutual trust—trust based on confidence in the integrity of institutions and the continuity of markets. That confidence, taken for granted in well-functioning financial systems, has been lost in the present crisis, in substantial part due to its recent complexity and opacity. ...
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Group of Thirty
www.group30.org
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Washington, DC 20036
ISBN I-56708-146-0
CONTENTS
Acronyms and Abbreviations...............................................................................................5
Foreword............................................................................................................................7
Acknowledgements..............................................................................................................9
Financial Reform Working Group......................................................................................11
Introduction......................................................................................................................13
Part 1 – An Overview of a Program for Reform.................................................................15
Guiding Principles for Financial Reform.....................................................................17
1. The Public Sector Role in Safeguarding Financial Stability...................................17
2. Fair and Effective Competition.............................................................................18
3. Official Oversight and Crisis Response.................................................................18
4. International Consistency and Coordination........................................................18
5. Governance and Risk Management......................................................................19
Core Recommendations..............................................................................................21
Part 2 – Redefining the Boundaries of Prudential Regulation.............................................23
1. Prudential Regulation and Supervision of Banking Organizations........................27
Recommendation 1:.............................................................................................28
2. Consolidated Supervision of Non-Bank Financial Institutions .............................29
Recommendation 2: ............................................................................................29
3. Money Market Mutual Funds and Supervision....................................................29
Recommendation 3:.............................................................................................29
4. Oversight of Private Pools of Capital....................................................................30
Recommendation 4:.............................................................................................30
5. Government-Sponsored Enterprises......................................................................31
Recommendation 5:.............................................................................................31
Part 3 – The Structure of Prudential Regulation and International Coordination...............33
6. Regulatory Structure ...........................................................................................34
Recommendation 6:.............................................................................................35
7. Role of the Central Bank......................................................................................35
Recommendation 7:.............................................................................................36
8. International Coordination...................................................................................37
Recommendation 8:.............................................................................................37
Part 4 – Improving Standards for Governance,
Risk Management, Capital, and Liquidity..........................................................................39
9. Regulatory Standards for Governance and Risk Management..............................40
Recommendation 9:.............................................................................................41
10. Regulatory Capital Standards ..............................................................................42
Recommendation 10:...........................................................................................43
11. Standards for Liquidity Risk Management...........................................................43
Recommendation 11:...........................................................................................44
12. Fair Value Accounting..........................................................................................44
Recommendation 12:...........................................................................................46
Part 5 – Improving Transparency and Incentives,
and Strengthening the Financial Infrastructure...................................................................47
13. Restoring Confidence in Securitized Credit Markets.............................................48
Recommendation 13:...........................................................................................49
14. Rating Agency Reforms........................................................................................50
Recommendation 14:...........................................................................................51
15. Oversight of Credit Default Swaps (CDS)
and Over-the-Counter (OTC) Markets.................................................................52
Recommendation 15:...........................................................................................53
16. A Resolution Mechanism for Financial Institutions..............................................53
Recommendation 16:...........................................................................................54
17. Improving Transparency of Structured Product Markets......................................55
Recommendation 17:...........................................................................................55
18. Sharing Market Activity and Valuation Information.............................................56
Recommendation 18:...........................................................................................56
Part 6 – Concluding Comment...........................................................................................57
Appendix..........................................................................................................................59
Members of the Group of Thirty........................................................................................69
Publications of the Group of Thirty since 1990..................................................................73
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