What G20 Leaders Must Do To Stabilise our Economy and Fix ... - Vox

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VOXResearch-based policy analysis and commentary from leading economistsAbout the authorRaghuram Rajan is the Eric J. Gleacher Distinguished Service Professor of Finance at theUniversity of Chicago's Graduate School of Business, having been the IMF's Chief Economist(Economic Counsellor and Director of Research) between 2003 and 2006. He currently chairsa high-level committee set up by the Indian Planning Commission on Indian financial sectorreform. He has published widely in scholarly journals and recently written (with LuigiZingales) the book Saving Capitalism from the Capitalists. He has served on the editorialboard of the American Economic Review and the Journal of Finance. In 2003, he won theAmerican Finance Association's Fischer Black Prize.24
Not a New Bretton Woods but a New BrettonWoods processBarry EichengreenUniversity of California, Berkeley and CEPRThe November 15th meeting should explore the idea of a new "World FinancialOrganization" that, like the WTO, would blend national sovereignty with globally agreedrules on obligations for supervision and regulation. It should agree to immediately boost theIMF's lending capacity, with nations like China contributing in exchange for a revamping ofthe old G7/8 group into a new G7 (US, EU, Japan, China, Saudi Arabia, South Africa andBrazil) that would provide a proper global steering committee.Now that the quashing of excessive expectations is complete, it is time to ask whatcan realistically be accomplished by heads of state meeting in Washington onNovember 15th.Basic orientations should be obvious.• Leaders should focus on financial stability.• They should commit to a series of meetings.• They should strive for a process rather than a quick, hollow agreement.• They should acknowledge that consensus, like Rome, is not built in a day.Central challenge: consistent supervision and regulation withcomprehensive coverageTheir central challenge is how to ensure comprehensive and consistent supervisionand regulation of all systemically significant financial institutions, and cross-borderfinancial institutions in particular. The crisis is a reminder that inadequate supervisionat the national level can have global repercussions. Addressing this problem isthe single most important step they can take to make the world a safer financial place.There will be calls for a global regulator, echoing proposals for a World FinancialAuthority by John Eatwell and Lance Taylor a decade ago. But it is unrealistic to imaginethat the US and for that matter any country will turn over the conduct of nationalfinancial regulation to an international body. (The US has already signalled its positionon this question.) Regulation of financial markets is a valued national prerogative.Not even EU member states have been willing to agree to a single regulator. Inany case there is the particularity of national financial structures, which places effectiveoversight beyond the grasp of any global body.Create a "World Financial Organisation" in the image of the WTOThe European proposal for squaring this circle by creating a College of Regulators isweak soup. We need more than information sharing and discussions. Better would be25
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