G7 Italy-digi

Innovation, skills and labour for the New Production Revolution
2012 90%
onwards, OTC derivatives have been
traded through centralised counterparties
of Japan's governement bonds
are owned by resident investors
Resilience is
key to financial
security
In light of increasing uncertainties in several nations, it
would be wise for the G7 to consider a global approach to
reach financial robustness, writes Chiara Oldani
1200
Gross Market Value
OTC Interest Rates Swaps
(US$ Billion)
Non Financial Customers
---
In March 2017, the G20 finance ministers
and central bank governors affirmed
that “an open and resilient financial
system is crucial to supporting
sustainable growth and development.
To this end, we reiterate our commitment
to support the timely, full and consistent
implementation and finalisation of the
agreed G20 financial sector reform agenda.”
Since 2009, significant progress has been
made with respect to banking supervision
and capitalisation, which has led to
the Basel III regulatory framework. The
resilience of the financial system increased
because of improved capitalisation of
intermediaries. The Financial Stability
Board (FSB) is working on transforming
shadow banking into resilient marketbased
finance, as a valuable alternative to
banking, and regulatory coordination is the
tool to achieve this goal.
Chinese Finance Minister Xiao Jie (R) meets
with US Treasury Secretary Steven Mnuchin
1000
800
600
2010
2011
2012
2013
2014
2015
2016
SOURCE: BIS DERIVATIVES STATISTICS
The root of the crisis
Since 2012, over-the-counter (OTC)
derivatives, considered to be at the root of
the 2008 financial crisis, have been traded
mainly through centralised counterparties,
significantly reducing market risks.
The G20 addressed the role of OTC
derivatives. This was a step in the right
direction, but global regulatory reforms
lack transatlantic coordination. Moreover,
governments, local administrations,
municipalities and non-financial firms
– that is, non-financial operators – are not
included in the new regulatory framework.
Such trading has been exempt because of
the relatively small size and supposedly
simplistic nature of the products (see graph).
But the interconnected global financial
system can create conditions for a domino
effect, which can alter financial stability.
Priorities of the G7 hosts
The constructive position taken by the G20
finance ministers and central bankers on
financial regulation and its coordination
116 G7 Italy: The Taormina Summit • May 2017 g7g20.com