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G20 pledges to strengthen global financial safety nets
Published in The Saudi Gazette on 05 - 11 - 2011

The leaders of the G20 economic powers agreed Friday measures to regulate the “shadow banking sector”, hedge funds, derivatives trades and traders' bonuses, according to a draft statement.
In the statement, to be released in its final form at the Cannes summit, the leaders mandate the existing Financial Stability Board and the International Organization of Securities Commissions to take tighter charge.
“We will develop further our regulation on market integrity and efficiency, including addressing the risks posed by high frequency trading and dark liquidity,” they say, according to the draft.
The term “dark liquidity” refers to securities traded privately rather than on public exchanges, in a way which avoids influencing the broader market but which is seen as more open to abuse.
“All standardized over-the-counter derivatives contracts should be traded on exchanges or electronic trading platforms, where appropriate, and centrally cleared, by the end of 2012,” the statement said.
“We have agreed to reform the FSB to improve its capacity to coordinate and monitor our financial regulation agenda,” the statement added, urging the Swiss-based bank regulator to close remaining loopholes in its monitoring.
The FSB is to publish on Friday a list of the “Global Systemic Financial Institutions” which are considered too big to fail and will be subjected to tougher requirements for capital ratios to protect the world economy.
The body is also to monitor and report on bankers' bonuses, which leaders believe encourage risky trading practices and have sought to limit, and to spot “gaps and impediments to full implementation of these standards.”
The final communiqué said the G20 leaders support the IMF in putting forward the new Precautionary and Liquidity Line (PLL) to provide on a case by case basis increased and more flexible short-term liquidity to countries with strong policies and fundamentals facing exogenous shocks.
Twenty-nine banks were named as being deemed so important to the global financial system that they are likely to need to hold more capital than rivals and must put in place a plan to allow them to be wound up without taxpayer help if they hit trouble.
Of the banks listed, 17 are from Europe, eight are US banks, including Goldman Sachs, JP Morgan and Citigroup , and just four from Asia, including Bank of China .
The G20 endorsed a core capital requirement surcharge starting at 1 percent and rising to 2.5 percent of risk-weighted assets for the biggest banks - which would be phased in over three years from 2016. The aim is to ensure taxpayers will never again be called on to foot the bill in a major banking crisis.
The group also pledged to fight cross-border tax evasion under an agreement approved Friday, which supporters say could raise tens of billions of dollars at a time when indebted European nations are scrambling for more revenue.
The deal adds to a marathon campaign by the US and the European Union to pressure Switzerland and other tax havens to scrap practices they say help wealthy individuals and companies hide income.
Supporters say the agreement could help governments collect tens of billions of dollars in taxes on previously hidden income.
The OECD which developed the agreement with the Council of Europe, has pointed to estimates that the US loses $100 billion a year and Greece $30 billion to tax evasion.
The agreement is meant to promote tax fairness, which might help to ease social tensions, said Jeffrey Owens, director of the OECD's center for tax policy.
“We want the rich to pay taxes. We want the multinationals to pay taxes. That's important in today's environment,” he said.

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