Ever since Canada came into existence, the country has lived in the shadow of the U.S. It was always the poor cousin, the inconsequential northern neighbor that was mostly known for Mounties, polar bears, cold fronts and, latterly, seal hunts.
Truth be told, why should Americans pay much attention to Canada? The U.S. is the richest country on earth, enjoys the highest standard of living, has larger than life leaders and deploys the most powerful military force the world has ever seen. Canada may be bigger geographically but with a population smaller than that of California, it simply hasn't counted for much.
Things are changing. Canada is gaining a world reputation as being a strong, confident and well-managed nation. Yes, the country still has its faults and its problems, but most Canadians are feeling pretty good about their country right now. And so they should.
10 Reasons Canada Is Cheering
1. Strong Banks
2.Low Debt
3.Strong Housing Market
4.Oil Sands
5. Conventional Oil
6. Cows and Wheat
7.Gold, Nickel, Uranium
8. Technology
9.Water
10. The Loonie
Of course, the Olympics in Vancouver have put Canada in the international spotlight the way no other sporting spectacle can, but the Olympics are a passing event. By the time the lights have been turned off and the athletes have returned home with their medals or their shattered dreams, the world will be watching something else.
It's what remains behind that really matters, and in Canada you have a country that is emerging from the worst economic downturn since the Great Depression in much better shape than the U.S. or Europe. The Canadian banking system is strong, its growth prospects are the best among the G7 nations, and the country's rich resources are in demand around the world.
A commentary published on Feb. 11 by government finance expert Warren Lovely of CIBC World Markets puts into perspective just how far Canada has come in recent years. Looking at the sovereign debt crises facing such countries as Greece and Spain and the ballooning deficits in the U.S., Lovely suggests that Canada is now seen as a "safe harbor in today's global debt storm." He went on to write that very few economies have better GDP growth prospects than Canada's. It's the country's proven willingness and ability to overcome deficits and to maintain fiscal integrity "that shine the most favorable light on Canada," he writes.
"The country's general government budget deficit, which incorporates lower levels of government, is not trivial, but after slaying large structural deficits in the early 1990s and reeling off a decade of surpluses, Canada's fiscal rectitude is well proven," writes Lovely. "There's a staunch commitment on the part of the main parties in Ottawa to restore fiscal health, and the 2010 federal budget on March 4 was expected to chart a course back to balance."
This gives Canada unprecedented stature on the international financial stage. "Canada is, after all, one of the very few countries where general government debt (as a percent of GDP) is lower than it was a decade ago," Mr. Lovely writes.
An accompanying table showed Canada's projected net debt-to-GDP ratio in 2011 as 36%, down nine percentage points over the past decade. By contrast, the net debt to GDP ratio in the U.S. is expected to be 72%, up 37 percentage points in 10 years. No major European country comes anywhere close to Canada in this regard; Germany is in the best position with a 58% debt-to-GDP ratio.
No wonder foreign investment money is pouring into Canada. Recently, Eric Lascelles, chief economics and rates strategist at TD Securities, was quoted in the Canadian press as saying that over the past 12 months foreign investors have purchased $65-billion worth of Canadian bonds, net. That's almost double the previous high.
In early February I was a speaker at the World Money Show in Orlando and I can report that investor interest in Canada was the highest I have ever experienced. Many Americans I spoke to say they have become nervous about the future prospects for their country and are deeply concerned by the steady decline in the value of the U.S. dollar. People who never before would have considered investing abroad were eager for information about opportunities in this country and several even asked how to open Canadian dollar bank accounts.
None of this should make Canadians feel smug or superior. We still have some serious issues to deal with including wrestling with government deficits, managing an apparent housing bubble, and trying to replace the lost manufacturing jobs in Ontario and Quebec.
I believe that Canada now has a national confidence that it can solve any problems and emerge stronger than ever. For any Americans considering investing some money abroad, it's one of the best choices they can make. Two stocks of Canadian companies that trade on the New York Stock Exchange that I like are oil and gas trust Baytex Energy Trust and Shaw Communications, which provides broadband cable TV, Internet, telecommunications and satellite services.
Read more: http://www.financialpost.com/story.html?id=2642216#ixzz0hcGh9a4W
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Showing posts with label Economics. Show all posts
Showing posts with label Economics. Show all posts
Monday, March 8, 2010
Sunday, October 25, 2009
Easing into investments can pay dividends
Waiting to invest, or reinvest? Today's column is for you.
I stumbled upon this short online article the other day, and thought it explained well some of the advantages of dividend paying stocks, as to other investment strategies. I was also reminded of a childhood memory when I was first introduced to the nature of dividends, and forming a chant with my little sister, "We like dividends, ...". Lots of goodtimes.
JR
Although it's very encouraging to see markets bounce back to the extent they have so far this year, it's no big surprise that people are still feeling uneasy. The past twelve months have tested our resolve. Because no one can predict the near-term future, most conservative investors, like those nearing or in retirement, would rather tiptoe than dive into the investment markets.
A word of caution to those inclined to get overly conservative and simply stop investing. The research is clear; not investing in things that can provide higher than risk free returns is a risky proposition indeed.
The bounce in markets we've witnessed is not unprecedented. Following most every steep market decline the indices bounce high off the bottom. While the bounce has been impressive, there is building evidence that there is a lot more upside in the coming years as global economic growth resumes.
Investors who want to participate in the upside potential but stay conservative in their approach may find that a diversified portfolio of dividend paying, blue chip equities provides the ideal balance between risk and opportunity. Dividend paying equities are unique because they allow investors to participate in the market's long term growth, while collecting an investment income.
Here are four characteristics you will want to be thinking about as you consider investing in dividend paying securities. First, the combination of income (dividends) and the potential for capital growth is a powerful combination in any portfolio.
Second, the steady stream of income from the investments, builds what is best described as a cushion that supports the share price, even in volatile markets.
Third, compared to interest income, the tax efficiency of dividends as a form of investment income is almost beyond compare.
Finally, dividends are normally paid by the most stable, well established, blue-chip businesses. Even in tough times these strong companies generally remain profitable and continue to share their profits with shareholders via the dividend payments.
Dividend paying securities are available in several different ways. For individuals with portfolios north of $250,000 it makes sense to buy some of the shares directly. For those with less, you can invest using dividend oriented exchange traded funds (ETFs), or through one of several high quality dividend mutual funds.
Tiptoeing or easing your way into investments can be accomplished by buying smaller amounts over time. This process is sometimes referred to as dollar-cost-averaging. It's tougher to do with ETFs and individual shares than with mutual funds, because the former must be bought on the stock exchange and mutual funds are not, but it can be done.
Statistics show that the value of dollar-cost-averaging (DCA) is more psychological than anything else, but because it helps people stick to their investment plan it works. With DCA investors decide how much in total they will invest, then over a period of (usually) months they buy fractions of the investment at whatever the market prices are when purchased. As investment values move up and down they are able to buy some at lower and some at higher prices. This addresses the concern most investors have that they will invest just before the prices fall and then regret making the investment.
With the passing of this financial crisis, much of the risk and uncertainty has been removed from corporate balance sheets. Because of this purge, today investors can have a clearer picture of the financial details and a higher level of confidence in the companies in which they invest.
We believe it`s time to get off the sidelines and get your money working for you. Earning next to nothing in a cash-like investment is not a sensible long term investment strategy. See your advisor today to review your overall financial plan and talk about what investments make sense for you.
Keir Clark is a senior wealth adviser and life underwriter with ScotiaMcLeod in Fredericton
I stumbled upon this short online article the other day, and thought it explained well some of the advantages of dividend paying stocks, as to other investment strategies. I was also reminded of a childhood memory when I was first introduced to the nature of dividends, and forming a chant with my little sister, "We like dividends, ...". Lots of goodtimes.
JR
Although it's very encouraging to see markets bounce back to the extent they have so far this year, it's no big surprise that people are still feeling uneasy. The past twelve months have tested our resolve. Because no one can predict the near-term future, most conservative investors, like those nearing or in retirement, would rather tiptoe than dive into the investment markets.
A word of caution to those inclined to get overly conservative and simply stop investing. The research is clear; not investing in things that can provide higher than risk free returns is a risky proposition indeed.
The bounce in markets we've witnessed is not unprecedented. Following most every steep market decline the indices bounce high off the bottom. While the bounce has been impressive, there is building evidence that there is a lot more upside in the coming years as global economic growth resumes.
Investors who want to participate in the upside potential but stay conservative in their approach may find that a diversified portfolio of dividend paying, blue chip equities provides the ideal balance between risk and opportunity. Dividend paying equities are unique because they allow investors to participate in the market's long term growth, while collecting an investment income.
Here are four characteristics you will want to be thinking about as you consider investing in dividend paying securities. First, the combination of income (dividends) and the potential for capital growth is a powerful combination in any portfolio.
Second, the steady stream of income from the investments, builds what is best described as a cushion that supports the share price, even in volatile markets.
Third, compared to interest income, the tax efficiency of dividends as a form of investment income is almost beyond compare.
Finally, dividends are normally paid by the most stable, well established, blue-chip businesses. Even in tough times these strong companies generally remain profitable and continue to share their profits with shareholders via the dividend payments.
Dividend paying securities are available in several different ways. For individuals with portfolios north of $250,000 it makes sense to buy some of the shares directly. For those with less, you can invest using dividend oriented exchange traded funds (ETFs), or through one of several high quality dividend mutual funds.
Tiptoeing or easing your way into investments can be accomplished by buying smaller amounts over time. This process is sometimes referred to as dollar-cost-averaging. It's tougher to do with ETFs and individual shares than with mutual funds, because the former must be bought on the stock exchange and mutual funds are not, but it can be done.
Statistics show that the value of dollar-cost-averaging (DCA) is more psychological than anything else, but because it helps people stick to their investment plan it works. With DCA investors decide how much in total they will invest, then over a period of (usually) months they buy fractions of the investment at whatever the market prices are when purchased. As investment values move up and down they are able to buy some at lower and some at higher prices. This addresses the concern most investors have that they will invest just before the prices fall and then regret making the investment.
With the passing of this financial crisis, much of the risk and uncertainty has been removed from corporate balance sheets. Because of this purge, today investors can have a clearer picture of the financial details and a higher level of confidence in the companies in which they invest.
We believe it`s time to get off the sidelines and get your money working for you. Earning next to nothing in a cash-like investment is not a sensible long term investment strategy. See your advisor today to review your overall financial plan and talk about what investments make sense for you.
Keir Clark is a senior wealth adviser and life underwriter with ScotiaMcLeod in Fredericton
Wednesday, February 25, 2009
Holy See on Consequences of the Economic Crisis
"A Strong Increase in Infant Mortality … Is Forecasted for 2009"
Here is the address Archbishop Silvano Tomasi, the Holy See's permanent observer at the U.N. offices in Geneva gave Friday at the 10th special session of the Human Rights Council on the impact of the economic crisis and world finances.
* * *
1. As we are daily reminded by the media, the world financial crisis has created a global recession causing dramatic social consequences, including the loss of millions of jobs and the serious risk that, for many of the developing countries, the Millennium Development Goals (MDGs) may not be reached. The human rights of countless persons are compromised, including the right to food, water, health and decent work. Above all, when large segments of a national population see their social and economic rights frustrated, the loss of hope endangers peace. The international community has a legitimate responsibility to ask why such a situation developed; whose responsibility it is; and how a concerted solution can lead us out of the crisis and facilitate the restoration of rights. The crisis was caused, in part, by problematic behaviour of some actors in the financial and economic system, including bank administrators and those who should have been more diligent in monitoring and accountability systems; thus they bear much responsibility for the current problems. The causes of the crisis, however, are deeper.
2. Reflecting, at that time, on the 1929 crisis Pius XI observed that: "… it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure" (Quadragesimo Anno, n.105). He also noted that free competition had destroyed itself by relying on profit as the only criterion. There are economic, juridical and cultural dimensions of the present crisis. To engage in financial activity cannot be reduced to making easy profits, but also must include the promotion of the common good among those who lend, those who borrow, and those who work. The lack of an ethical base has brought the crisis to low, middle and high income countries alike. The Delegation of the Holy See, Mr. President, calls for renewed "attention to the need for an ethical approach to the creation of positive partnerships between markets, civil society and States." (Pope Benedict XVI).
3. The negative consequences, however, exert a more dramatic impact on the developing world and on the most vulnerable groups in all societies. In a recent document, the World Bank estimates that, in 2009, the current global economic crisis could push an additional 53 million people below the threshold of $2 a day. This figure is in addition to the 130 million people pushed into poverty in 2008 by the increase in food and energy prices. Such trends seriously threaten the achievement of the fight against poverty in the Millennium Development Goals by 2015. Evidence indicates that children, in particular, will suffer the most from economic hardship, and a strong increase in the infant mortality rate in poor countries is forecasted for 2009.
4. It is well known that low-income countries are heavily dependent upon two financing flows: foreign aid and migrant remittances. Both flows are expected to decline significantly over the next months, due to the worsening of the economic crisis. Despite the official reaffirmation of commitment by donors to increase Official Development Assistance (ODA) in accord with the Gleneagles agreement, currently most donors are not on track to meet their target for significant scale-up of ODA by 2010. Moreover, the most recent figures reveal a slowing down of aid flows. This results in worry that a possible direct effect of the global economic crisis will be a major reduction of aid to the poor countries. On the other hand, remittances from migrant workers already have been reduced significantly. This threatens the economic survival of entire families who derive a consistent share of their income from the transfer of funds by relatives working overseas.
5. The Delegation of the Holy See, Mr. President, would like to focus on a specific case in this crisis: its impact on the human rights of children, which exemplifies, as well, what is symptomatic of the destructive impact on all other social and economic rights. At present some important rights of poor people are heavily dependent on official aid flows and on workers’ remittances. These include the right to health, education, and food. In several poor countries, in fact, educational, health and nutritional programs are implemented with the help of aid flows from official donors. Should the economic crisis reduce this assistance, the successful completion of these programs could be threatened. By the same token, in many poor regions, entire families can afford to have their children educated and decently nourished due to remittances received from migrants. If the reduction of both aid and remittances continue, it will deprive children of the right to be educated creating a double negative consequence. Not only will we prevent children from the full exercise of their talent that, in turn, could be put to use for the common good, but also the preconditions will be established for long-range economic hardship. Lower educational investment today, in fact, will be translated into lower future growth. At the same time, poor nutrition among children significantly worsens life expectancy by increasing both child and adult mortality rates. The negative economic consequences of this go beyond the personal dimension and affect entire societies.
6. Mr. President, let me mention another consequence of the global economic crisis that could be particularly relevant for the mandate of the United Nations. All too often, periods of severe economic hardship have been characterized by the rise in power of governments with dubious commitments to democracy. The Holy See prays that such consequences will be avoided in the present crisis, since they would result in a serious threat for the diffusion of basic human rights for which this institution has so tenaciously struggled.
7. The last fifty years have witnessed some great achievements in poverty reduction. Mr. President, these achievements are at risk, and a coherent approach is required to preserve them through a renewed sense of solidarity, especially for the segments of population and for the countries more affected by the crisis. Old and recent mistakes will be repeated, however, if concerted international action is not undertaken to promote and protect all human rights and if direct financial and economic activities are not placed on an ethical road that can prioritize persons, their productivity and their rights over the greed that can result from a fixation on profit alone.
Here is the address Archbishop Silvano Tomasi, the Holy See's permanent observer at the U.N. offices in Geneva gave Friday at the 10th special session of the Human Rights Council on the impact of the economic crisis and world finances.
* * *
1. As we are daily reminded by the media, the world financial crisis has created a global recession causing dramatic social consequences, including the loss of millions of jobs and the serious risk that, for many of the developing countries, the Millennium Development Goals (MDGs) may not be reached. The human rights of countless persons are compromised, including the right to food, water, health and decent work. Above all, when large segments of a national population see their social and economic rights frustrated, the loss of hope endangers peace. The international community has a legitimate responsibility to ask why such a situation developed; whose responsibility it is; and how a concerted solution can lead us out of the crisis and facilitate the restoration of rights. The crisis was caused, in part, by problematic behaviour of some actors in the financial and economic system, including bank administrators and those who should have been more diligent in monitoring and accountability systems; thus they bear much responsibility for the current problems. The causes of the crisis, however, are deeper.
2. Reflecting, at that time, on the 1929 crisis Pius XI observed that: "… it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure" (Quadragesimo Anno, n.105). He also noted that free competition had destroyed itself by relying on profit as the only criterion. There are economic, juridical and cultural dimensions of the present crisis. To engage in financial activity cannot be reduced to making easy profits, but also must include the promotion of the common good among those who lend, those who borrow, and those who work. The lack of an ethical base has brought the crisis to low, middle and high income countries alike. The Delegation of the Holy See, Mr. President, calls for renewed "attention to the need for an ethical approach to the creation of positive partnerships between markets, civil society and States." (Pope Benedict XVI).
3. The negative consequences, however, exert a more dramatic impact on the developing world and on the most vulnerable groups in all societies. In a recent document, the World Bank estimates that, in 2009, the current global economic crisis could push an additional 53 million people below the threshold of $2 a day. This figure is in addition to the 130 million people pushed into poverty in 2008 by the increase in food and energy prices. Such trends seriously threaten the achievement of the fight against poverty in the Millennium Development Goals by 2015. Evidence indicates that children, in particular, will suffer the most from economic hardship, and a strong increase in the infant mortality rate in poor countries is forecasted for 2009.
4. It is well known that low-income countries are heavily dependent upon two financing flows: foreign aid and migrant remittances. Both flows are expected to decline significantly over the next months, due to the worsening of the economic crisis. Despite the official reaffirmation of commitment by donors to increase Official Development Assistance (ODA) in accord with the Gleneagles agreement, currently most donors are not on track to meet their target for significant scale-up of ODA by 2010. Moreover, the most recent figures reveal a slowing down of aid flows. This results in worry that a possible direct effect of the global economic crisis will be a major reduction of aid to the poor countries. On the other hand, remittances from migrant workers already have been reduced significantly. This threatens the economic survival of entire families who derive a consistent share of their income from the transfer of funds by relatives working overseas.
5. The Delegation of the Holy See, Mr. President, would like to focus on a specific case in this crisis: its impact on the human rights of children, which exemplifies, as well, what is symptomatic of the destructive impact on all other social and economic rights. At present some important rights of poor people are heavily dependent on official aid flows and on workers’ remittances. These include the right to health, education, and food. In several poor countries, in fact, educational, health and nutritional programs are implemented with the help of aid flows from official donors. Should the economic crisis reduce this assistance, the successful completion of these programs could be threatened. By the same token, in many poor regions, entire families can afford to have their children educated and decently nourished due to remittances received from migrants. If the reduction of both aid and remittances continue, it will deprive children of the right to be educated creating a double negative consequence. Not only will we prevent children from the full exercise of their talent that, in turn, could be put to use for the common good, but also the preconditions will be established for long-range economic hardship. Lower educational investment today, in fact, will be translated into lower future growth. At the same time, poor nutrition among children significantly worsens life expectancy by increasing both child and adult mortality rates. The negative economic consequences of this go beyond the personal dimension and affect entire societies.
6. Mr. President, let me mention another consequence of the global economic crisis that could be particularly relevant for the mandate of the United Nations. All too often, periods of severe economic hardship have been characterized by the rise in power of governments with dubious commitments to democracy. The Holy See prays that such consequences will be avoided in the present crisis, since they would result in a serious threat for the diffusion of basic human rights for which this institution has so tenaciously struggled.
7. The last fifty years have witnessed some great achievements in poverty reduction. Mr. President, these achievements are at risk, and a coherent approach is required to preserve them through a renewed sense of solidarity, especially for the segments of population and for the countries more affected by the crisis. Old and recent mistakes will be repeated, however, if concerted international action is not undertaken to promote and protect all human rights and if direct financial and economic activities are not placed on an ethical road that can prioritize persons, their productivity and their rights over the greed that can result from a fixation on profit alone.
Sunday, January 18, 2009
Families That Eat Together, Stay Together
Economist Points to Families as an Answer to Recession
It is no more complicated than sitting down together at the table, but according to an economist from the Catholic University of America, simply sharing family meals is key for children's development.
And, the economist suggested, strong families are good not just for the children given life within them. They are also good for the economy.
These were affirmations made by Maria Sophia Aguirre, a professor in the department of economics at Washington, D.C.'s Catholic University of America, during her address today at the 6th World Meeting of Families, underway in Mexico City.
Her presentation focused on the multiple benefits of stable families based on marriage, for all involved parties. She cited statistics such as marriage increases the likelihood of the father having good relations with children; divorce reduces the likelihood of children graduating from college and high school; and married mothers have lower levels of depression than single or co-habiting mothers.
Even physical health is better for families based on marriage, she said: Infant mortality is sharply reduced in this structure and there are lower probabilities of injury.
On the contrary, Aguirre noted, "the breakdown of the family is a symptom of a sick and weak society."
Problems of all sorts increase in irregular families: Women are more likely to be abused, kids are more likely to use drugs, and women and children of broken families have a higher probability of living in poverty.
More than a meal
And though it cannot be the solution for every problem, Aguirre mentioned that the simple act of eating together as a family has an effect on the development of children.
According to a study done by the National Center on Substance and Addiction at Colombia University, when comparing adolescents who eat dinner 0-2 times a week with their families and those who eat dinner 5-7 times, those who eat with their families more frequently are 40% more like to talk to their parents about a problem. Meanwhile, 171% of the teens who don't eat with their families note more tension at home.
Academic performance went up 38%. Kids were 142% less likely to smoke, 93% less likely to drink, 191% less likely to use marijuana and 169% less likely to have more than half of their friends be drug users.
And predictably, a family composed of both parents is 3.5 times more likely to have dinner as a family than a single-parent household.
More than money
Aguirre then turned her attention to the economic benefits of stable families based on marriage. Giving a review of nations ranging from Canada to Chile, the economist concluded that families are simply better for the economy.
"The breakdown of the family damages the economy and society since human, moral and social capital is reduced and social costs increase," she explained.
The professor contended that family structure is quite relevant for wealth, and that there is evidence to support this from across countries.
"The family is a necessary good for economic development," Aguirre concluded. "It should be promoted and protected if poverty reduction wants to be achieved."
It is no more complicated than sitting down together at the table, but according to an economist from the Catholic University of America, simply sharing family meals is key for children's development.
And, the economist suggested, strong families are good not just for the children given life within them. They are also good for the economy.
These were affirmations made by Maria Sophia Aguirre, a professor in the department of economics at Washington, D.C.'s Catholic University of America, during her address today at the 6th World Meeting of Families, underway in Mexico City.
Her presentation focused on the multiple benefits of stable families based on marriage, for all involved parties. She cited statistics such as marriage increases the likelihood of the father having good relations with children; divorce reduces the likelihood of children graduating from college and high school; and married mothers have lower levels of depression than single or co-habiting mothers.
Even physical health is better for families based on marriage, she said: Infant mortality is sharply reduced in this structure and there are lower probabilities of injury.
On the contrary, Aguirre noted, "the breakdown of the family is a symptom of a sick and weak society."
Problems of all sorts increase in irregular families: Women are more likely to be abused, kids are more likely to use drugs, and women and children of broken families have a higher probability of living in poverty.
More than a meal
And though it cannot be the solution for every problem, Aguirre mentioned that the simple act of eating together as a family has an effect on the development of children.
According to a study done by the National Center on Substance and Addiction at Colombia University, when comparing adolescents who eat dinner 0-2 times a week with their families and those who eat dinner 5-7 times, those who eat with their families more frequently are 40% more like to talk to their parents about a problem. Meanwhile, 171% of the teens who don't eat with their families note more tension at home.
Academic performance went up 38%. Kids were 142% less likely to smoke, 93% less likely to drink, 191% less likely to use marijuana and 169% less likely to have more than half of their friends be drug users.
And predictably, a family composed of both parents is 3.5 times more likely to have dinner as a family than a single-parent household.
More than money
Aguirre then turned her attention to the economic benefits of stable families based on marriage. Giving a review of nations ranging from Canada to Chile, the economist concluded that families are simply better for the economy.
"The breakdown of the family damages the economy and society since human, moral and social capital is reduced and social costs increase," she explained.
The professor contended that family structure is quite relevant for wealth, and that there is evidence to support this from across countries.
"The family is a necessary good for economic development," Aguirre concluded. "It should be promoted and protected if poverty reduction wants to be achieved."
Sunday, November 16, 2008
Declaration of the Summit on Financial Markets and the World Economy
Fact sheet In Focus:Summit on Financial Markets and the World Economy
1. We, the Leaders of the Group of Twenty, held an initial meeting in Washington on November 15, 2008, amid serious challenges to the world economy and financial markets. We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems.
2. Over the past months our countries have taken urgent and exceptional measures to support the global economy and stabilize financial markets. These efforts must continue. At the same time, we must lay the foundation for reform to help to ensure that a global crisis, such as this one, does not happen again. Our work will be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction.
Root Causes of the Current Crisis
3. During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.
4. Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. These developments, together, contributed to excesses and ultimately resulted in severe market disruption.
Actions Taken and to Be Taken
5. We have taken strong and significant actions to date to stimulate our economies, provide liquidity, strengthen the capital of financial institutions, protect savings and deposits, address regulatory deficiencies, unfreeze credit markets, and are working to ensure that international financial institutions (IFIs) can provide critical support for the global economy.
6. But more needs to be done to stabilize financial markets and support economic growth. Economic momentum is slowing substantially in major economies and the global outlook has weakened. Many emerging market economies, which helped sustain
the world economy this decade, are still experiencing good growth but increasingly are being adversely impacted by the worldwide slowdown.
7. Against this background of deteriorating economic conditions worldwide, we agreed that a broader policy response is needed, based on closer macroeconomic cooperation, to restore growth, avoid negative spillovers and support emerging market economies and developing countries. As immediate steps to achieve these objectives, as well as to address longer-term challenges, we will:
* Continue our vigorous efforts and take whatever further actions are necessary to stabilize the financial system. * Recognize the importance of monetary policy support, as deemed appropriate to domestic conditions. * Use fiscal measures to stimulate domestic demand to rapid effect, as appropriate, while maintaining a policy framework conducive to fiscal sustainability. * Help emerging and developing economies gain access to finance in current difficult financial conditions, including through liquidity facilities and program support. We stress the International Monetary Fund's (IMF) important role in crisis response, welcome its new short-term liquidity facility, and urge the ongoing review of its instruments and facilities to ensure flexibility. * Encourage the World Bank and other multilateral development banks (MDBs) to use their full capacity in support of their development agenda, and we welcome the recent introduction of new facilities by the World Bank in the areas of infrastructure and trade finance. * Ensure that the IMF, World Bank and other MDBs have sufficient resources to continue playing their role in overcoming the crisis.
Common Principles for Reform of Financial Markets
8. In addition to the actions taken above, we will implement reforms that will strengthen financial markets and regulatory regimes so as to avoid future crises. Regulation is first and foremost the responsibility of national regulators who constitute the first line of defense against market instability. However, our financial markets are global in scope, therefore, intensified international cooperation among regulators and strengthening of international standards, where necessary, and their consistent implementation is necessary to protect against adverse cross-border, regional and global developments affecting international financial stability. Regulators must ensure that their actions support market discipline, avoid potentially adverse impacts on other countries, including regulatory arbitrage, and support competition, dynamism and innovation in the marketplace. Financial institutions must also bear their responsibility for the turmoil and should do their part to overcome it including by recognizing losses, improving disclosure and strengthening their governance and risk management practices.
9. We commit to implementing policies consistent with the following common principles for reform.
* Strengthening Transparency and Accountability: We will strengthen financial market transparency, including by enhancing required disclosure on complex financial products and ensuring complete and accurate disclosure by firms of their financial conditions. Incentives should be aligned to avoid excessive risk-taking.
* Enhancing Sound Regulation: We pledge to strengthen our regulatory regimes, prudential oversight, and risk management, and ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances. We will exercise strong oversight over credit rating agencies, consistent with the agreed and strengthened international code of conduct. We will also make regulatory regimes more effective over the economic cycle, while ensuring that regulation is efficient, does not stifle innovation, and encourages expanded trade in financial products and services. We commit to transparent assessments of our national regulatory systems.
* Promoting Integrity in Financial Markets: We commit to protect the integrity of the world's financial markets by bolstering investor and consumer protection, avoiding conflicts of interest, preventing illegal market manipulation, fraudulent activities and abuse, and protecting against illicit finance risks arising from non-cooperative jurisdictions. We will also promote information sharing, including with respect to jurisdictions that have yet to commit to international standards with respect to bank secrecy and transparency.
* Reinforcing International Cooperation: We call upon our national and regional regulators to formulate their regulations and other measures in a consistent manner. Regulators should enhance their coordination and cooperation across all segments of financial markets, including with respect to cross-border capital flows. Regulators and other relevant authorities as a matter of priority should strengthen cooperation on crisis prevention, management, and resolution.
* Reforming International Financial Institutions: We are committed to advancing the reform of the Bretton Woods Institutions so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness. In this respect, emerging and developing economies, including the poorest countries, should have greater voice and representation. The Financial Stability Forum (FSF) must expand urgently to a broader membership of emerging economies, and other major standard setting bodies should promptly review their membership. The IMF, in collaboration with the expanded FSF and other bodies, should work to better identify vulnerabilities, anticipate potential stresses, and act swiftly to play a key role in crisis response.
Tasking of Ministers and Experts
10. We are committed to taking rapid action to implement these principles. We instruct our Finance Ministers, as coordinated by their 2009 G-20 leadership (Brazil, UK, Republic of Korea), to initiate processes and a timeline to do so. An initial list of specific measures is set forth in the attached Action Plan, including high priority actions to be completed prior to March 31, 2009.
In consultation with other economies and existing bodies, drawing upon the recommendations of such eminent independent experts as they may appoint, we request our Finance Ministers to formulate additional recommendations, including in the following specific areas:
* Mitigating against pro-cyclicality in regulatory policy; * Reviewing and aligning global accounting standards, particularly for complex securities in times of stress; * Strengthening the resilience and transparency of credit derivatives markets and reducing their systemic risks, including by improving the infrastructure of over-the-counter markets; * Reviewing compensation practices as they relate to incentives for risk taking and innovation; * Reviewing the mandates, governance, and resource requirements of the IFIs; and * Defining the scope of systemically important institutions and determining their appropriate regulation or oversight.
11. In view of the role of the G-20 in financial systems reform, we will meet again by April 30, 2009, to review the implementation of the principles and decisions agreed today.
Commitment to an Open Global Economy
12. We recognize that these reforms will only be successful if grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems. These principles are essential to economic growth and prosperity and have lifted millions out of poverty, and have significantly raised the global standard of living. Recognizing the necessity to improve financial sector regulation, we must avoid over-regulation that would hamper economic growth and exacerbate the contraction of capital flows, including to developing countries.
13. We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO's Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome.
14. We are mindful of the impact of the current crisis on developing countries, particularly the most vulnerable. We reaffirm the importance of the Millennium Development Goals, the development assistance commitments we have made, and urge both developed and emerging economies to undertake commitments consistent with their capacities and roles in the global economy. In this regard, we reaffirm the development principles agreed at the 2002 United Nations Conference on Financing for Development in Monterrey, Mexico, which emphasized country ownership and mobilizing all sources of financing for development.
15. We remain committed to addressing other critical challenges such as energy security and climate change, food security, the rule of law, and the fight against terrorism, poverty and disease.
16. As we move forward, we are confident that through continued partnership, cooperation, and multilateralism, we will overcome the challenges before us and restore stability and prosperity to the world economy.
Action Plan to Implement Principles for Reform
This Action Plan sets forth a comprehensive work plan to implement the five agreed principles for reform. Our finance ministers will work to ensure that the taskings set forth in this Action Plan are fully and vigorously implemented. They are responsible for the development and implementation of these recommendations drawing on the ongoing work of relevant bodies, including the International Monetary Fund (IMF), an expanded Financial Stability Forum (FSF), and standard setting bodies.
Strengthening Transparency and Accountability
Immediate Actions by March 31, 2009 * The key global accounting standards bodies should work to enhance guidance for valuation of securities, also taking into account the valuation of complex, illiquid products, especially during times of stress. * Accounting standard setters should significantly advance their work to address weaknesses in accounting and disclosure standards for off-balance sheet vehicles. * Regulators and accounting standard setters should enhance the required disclosure of complex financial instruments by firms to market participants. * With a view toward promoting financial stability, the governance of the international accounting standard setting body should be further enhanced, including by undertaking a review of its membership, in particular in order to ensure transparency, accountability, and an appropriate relationship between this independent body and the relevant authorities. * Private sector bodies that have already developed best practices for private pools of capital and/or hedge funds should bring forward proposals for a set of unified best practices. Finance Ministers should assess the adequacy of these proposals, drawing upon the analysis of regulators, the expanded FSF, and other relevant bodies.
Medium-term actions * The key global accounting standards bodies should work intensively toward the objective of creating a single high-quality global standard. * Regulators, supervisors, and accounting standard setters, as appropriate, should work with each other and the private sector on an ongoing basis to ensure consistent application and enforcement of high-quality accounting standards. * Financial institutions should provide enhanced risk disclosures in their reporting and disclose all losses on an ongoing basis, consistent with international best practice, as appropriate. Regulators should work to ensure that a financial institution' financial statements include a complete, accurate, and timely picture of the firm's activities (including off-balance sheet activities) and are reported on a consistent and regular basis.
Enhancing Sound Regulation
Regulatory Regimes
Immediate Actions by March 31, 2009 * The IMF, expanded FSF, and other regulators and bodies should develop recommendations to mitigate pro-cyclicality, including the review of how valuation and leverage, bank capital, executive compensation, and provisioning practices may exacerbate cyclical trends.
Medium-term actions * To the extent countries or regions have not already done so, each country or region pledges to review and report on the structure and principles of its regulatory system to ensure it is compatible with a modern and increasingly globalized financial system. To this end, all G-20 members commit to undertake a Financial Sector Assessment Program (FSAP) report and support the transparent assessments of countries' national regulatory systems. * The appropriate bodies should review the differentiated nature of regulation in the banking, securities, and insurance sectors and provide a report outlining the issue and making recommendations on needed improvements. A review of the scope of financial regulation, with a special emphasis on institutions, instruments, and markets that are currently unregulated, along with ensuring that all systemically-important institutions are appropriately regulated, should also be undertaken. * National and regional authorities should review resolution regimes and bankruptcy laws in light of recent experience to ensure that they permit an orderly wind-down of large complex cross-border financial institutions. * Definitions of capital should be harmonized in order to achieve consistent measures of capital and capital adequacy.
Prudential Oversight
Immediate Actions by March 31, 2009 * Regulators should take steps to ensure that credit rating agencies meet the highest standards of the international organization of securities regulators and that they avoid conflicts of interest, provide greater disclosure to investors and to issuers, and differentiate ratings for complex products. This will help ensure that credit rating agencies have the right incentives and appropriate oversight to enable them to perform their important role in providing unbiased information and assessments to markets. * The international organization of securities regulators should review credit rating agencies' adoption of the standards and mechanisms for monitoring compliance. * Authorities should ensure that financial institutions maintain adequate capital in amounts necessary to sustain confidence. International standard setters should set out strengthened capital requirements for banks' structured credit and securitization activities.
* Supervisors and regulators, building on the imminent launch of central counterparty services for credit default swaps (CDS) in some countries, should: speed efforts to reduce the systemic risks of CDS and over-the-counter (OTC) derivatives transactions; insist that market participants support exchange traded or electronic trading platforms for CDS contracts; expand OTC derivatives market transparency; and ensure that the infrastructure for OTC derivatives can support growing volumes.
Medium-term actions * Credit Ratings Agencies that provide public ratings should be registered. * Supervisors and central banks should develop robust and internationally consistent approaches for liquidity supervision of, and central bank liquidity operations for, cross-border banks.
Risk Management
Immediate Actions by March 31, 2009 * Regulators should develop enhanced guidance to strengthen banks' risk management practices, in line with international best practices, and should encourage financial firms to reexamine their internal controls and implement strengthened policies for sound risk management. * Regulators should develop and implement procedures to ensure that financial firms implement policies to better manage liquidity risk, including by creating strong liquidity cushions. * Supervisors should ensure that financial firms develop processes that provide for timely and comprehensive measurement of risk concentrations and large counterparty risk positions across products and geographies. * Firms should reassess their risk management models to guard against stress and report to supervisors on their efforts. * The Basel Committee should study the need for and help develop firms' new stress testing models, as appropriate. * Financial institutions should have clear internal incentives to promote stability, and action needs to be taken, through voluntary effort or regulatory action, to avoid compensation schemes which reward excessive short-term returns or risk taking. * Banks should exercise effective risk management and due diligence over structured products and securitization.
Medium -term actions * International standard setting bodies, working with a broad range of economies and other appropriate bodies, should ensure that regulatory policy makers are aware and able to respond rapidly to evolution and innovation in financial markets and products.
* Authorities should monitor substantial changes in asset prices and their implications for the macroeconomy and the financial system.
Promoting Integrity in Financial Markets
Immediate Actions by March 31, 2009 * Our national and regional authorities should work together to enhance regulatory cooperation between jurisdictions on a regional and international level. * National and regional authorities should work to promote information sharing about domestic and cross-border threats to market stability and ensure that national (or regional, where applicable) legal provisions are adequate to address these threats. * National and regional authorities should also review business conduct rules to protect markets and investors, especially against market manipulation and fraud and strengthen their cross-border cooperation to protect the international financial system from illicit actors. In case of misconduct, there should be an appropriate sanctions regime.
Medium -term actions * National and regional authorities should implement national and international measures that protect the global financial system from uncooperative and non-transparent jurisdictions that pose risks of illicit financial activity. * The Financial Action Task Force should continue its important work against money laundering and terrorist financing, and we support the efforts of the World Bank - UN Stolen Asset Recovery (StAR) Initiative. * Tax authorities, drawing upon the work of relevant bodies such as the Organization for Economic Cooperation and Development (OECD), should continue efforts to promote tax information exchange. Lack of transparency and a failure to exchange tax information should be vigorously addressed.
Reinforcing International Cooperation
Immediate Actions by March 31, 2009 * Supervisors should collaborate to establish supervisory colleges for all major cross-border financial institutions, as part of efforts to strengthen the surveillance of cross-border firms. Major global banks should meet regularly with their supervisory college for comprehensive discussions of the firm's activities and assessment of the risks it faces. * Regulators should take all steps necessary to strengthen cross-border crisis management arrangements, including on cooperation and communication with each other and with appropriate authorities, and develop comprehensive contact lists and conduct simulation exercises, as appropriate.
Medium -term actions * Authorities, drawing especially on the work of regulators, should collect information on areas where convergence in regulatory practices such as accounting standards, auditing, and deposit insurance is making progress, is in need of accelerated progress, or where there may be potential for progress. * Authorities should ensure that temporary measures to restore stability and confidence have minimal distortions and are unwound in a timely, well-sequenced and coordinated manner.
Reforming International Financial Institutions
Immediate Actions by March 31, 2009 * The FSF should expand to a broader membership of emerging economies. * The IMF, with its focus on surveillance, and the expanded FSF, with its focus on standard setting, should strengthen their collaboration, enhancing efforts to better integrate regulatory and supervisory responses into the macro-prudential policy framework and conduct early warning exercises. * The IMF, given its universal membership and core macro-financial expertise, should, in close coordination with the FSF and others, take a leading role in drawing lessons from the current crisis, consistent with its mandate. * We should review the adequacy of the resources of the IMF, the World Bank Group and other multilateral development banks and stand ready to increase them where necessary. The IFIs should also continue to review and adapt their lending instruments to adequately meet their members' needs and revise their lending role in the light of the ongoing financial crisis. * We should explore ways to restore emerging and developing countries' access to credit and resume private capital flows which are critical for sustainable growth and development, including ongoing infrastructure investment. * In cases where severe market disruptions have limited access to the necessary financing for counter-cyclical fiscal policies, multilateral development banks must ensure arrangements are in place to support, as needed, those countries with a good track record and sound policies.
Medium -term actions * We underscored that the Bretton Woods Institutions must be comprehensively reformed so that they can more adequately reflect changing economic weights in the world economy and be more responsive to future challenges. Emerging and developing economies should have greater voice and representation in these institutions. * The IMF should conduct vigorous and even-handed surveillance reviews of all countries, as well as giving greater attention to their financial sectors and better integrating the reviews with the joint IMF/World Bank financial sector assessment programs. On this basis, the role of the IMF in providing macro-financial policy advice would be strengthened. * Advanced economies, the IMF, and other international organizations should provide capacity-building programs for emerging market economies and developing countries on the formulation and the implementation of new major regulations, consistent with international standards.
1. We, the Leaders of the Group of Twenty, held an initial meeting in Washington on November 15, 2008, amid serious challenges to the world economy and financial markets. We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems.
2. Over the past months our countries have taken urgent and exceptional measures to support the global economy and stabilize financial markets. These efforts must continue. At the same time, we must lay the foundation for reform to help to ensure that a global crisis, such as this one, does not happen again. Our work will be guided by a shared belief that market principles, open trade and investment regimes, and effectively regulated financial markets foster the dynamism, innovation, and entrepreneurship that are essential for economic growth, employment, and poverty reduction.
Root Causes of the Current Crisis
3. During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.
4. Major underlying factors to the current situation were, among others, inconsistent and insufficiently coordinated macroeconomic policies, inadequate structural reforms, which led to unsustainable global macroeconomic outcomes. These developments, together, contributed to excesses and ultimately resulted in severe market disruption.
Actions Taken and to Be Taken
5. We have taken strong and significant actions to date to stimulate our economies, provide liquidity, strengthen the capital of financial institutions, protect savings and deposits, address regulatory deficiencies, unfreeze credit markets, and are working to ensure that international financial institutions (IFIs) can provide critical support for the global economy.
6. But more needs to be done to stabilize financial markets and support economic growth. Economic momentum is slowing substantially in major economies and the global outlook has weakened. Many emerging market economies, which helped sustain
the world economy this decade, are still experiencing good growth but increasingly are being adversely impacted by the worldwide slowdown.
7. Against this background of deteriorating economic conditions worldwide, we agreed that a broader policy response is needed, based on closer macroeconomic cooperation, to restore growth, avoid negative spillovers and support emerging market economies and developing countries. As immediate steps to achieve these objectives, as well as to address longer-term challenges, we will:
* Continue our vigorous efforts and take whatever further actions are necessary to stabilize the financial system. * Recognize the importance of monetary policy support, as deemed appropriate to domestic conditions. * Use fiscal measures to stimulate domestic demand to rapid effect, as appropriate, while maintaining a policy framework conducive to fiscal sustainability. * Help emerging and developing economies gain access to finance in current difficult financial conditions, including through liquidity facilities and program support. We stress the International Monetary Fund's (IMF) important role in crisis response, welcome its new short-term liquidity facility, and urge the ongoing review of its instruments and facilities to ensure flexibility. * Encourage the World Bank and other multilateral development banks (MDBs) to use their full capacity in support of their development agenda, and we welcome the recent introduction of new facilities by the World Bank in the areas of infrastructure and trade finance. * Ensure that the IMF, World Bank and other MDBs have sufficient resources to continue playing their role in overcoming the crisis.
Common Principles for Reform of Financial Markets
8. In addition to the actions taken above, we will implement reforms that will strengthen financial markets and regulatory regimes so as to avoid future crises. Regulation is first and foremost the responsibility of national regulators who constitute the first line of defense against market instability. However, our financial markets are global in scope, therefore, intensified international cooperation among regulators and strengthening of international standards, where necessary, and their consistent implementation is necessary to protect against adverse cross-border, regional and global developments affecting international financial stability. Regulators must ensure that their actions support market discipline, avoid potentially adverse impacts on other countries, including regulatory arbitrage, and support competition, dynamism and innovation in the marketplace. Financial institutions must also bear their responsibility for the turmoil and should do their part to overcome it including by recognizing losses, improving disclosure and strengthening their governance and risk management practices.
9. We commit to implementing policies consistent with the following common principles for reform.
* Strengthening Transparency and Accountability: We will strengthen financial market transparency, including by enhancing required disclosure on complex financial products and ensuring complete and accurate disclosure by firms of their financial conditions. Incentives should be aligned to avoid excessive risk-taking.
* Enhancing Sound Regulation: We pledge to strengthen our regulatory regimes, prudential oversight, and risk management, and ensure that all financial markets, products and participants are regulated or subject to oversight, as appropriate to their circumstances. We will exercise strong oversight over credit rating agencies, consistent with the agreed and strengthened international code of conduct. We will also make regulatory regimes more effective over the economic cycle, while ensuring that regulation is efficient, does not stifle innovation, and encourages expanded trade in financial products and services. We commit to transparent assessments of our national regulatory systems.
* Promoting Integrity in Financial Markets: We commit to protect the integrity of the world's financial markets by bolstering investor and consumer protection, avoiding conflicts of interest, preventing illegal market manipulation, fraudulent activities and abuse, and protecting against illicit finance risks arising from non-cooperative jurisdictions. We will also promote information sharing, including with respect to jurisdictions that have yet to commit to international standards with respect to bank secrecy and transparency.
* Reinforcing International Cooperation: We call upon our national and regional regulators to formulate their regulations and other measures in a consistent manner. Regulators should enhance their coordination and cooperation across all segments of financial markets, including with respect to cross-border capital flows. Regulators and other relevant authorities as a matter of priority should strengthen cooperation on crisis prevention, management, and resolution.
* Reforming International Financial Institutions: We are committed to advancing the reform of the Bretton Woods Institutions so that they can more adequately reflect changing economic weights in the world economy in order to increase their legitimacy and effectiveness. In this respect, emerging and developing economies, including the poorest countries, should have greater voice and representation. The Financial Stability Forum (FSF) must expand urgently to a broader membership of emerging economies, and other major standard setting bodies should promptly review their membership. The IMF, in collaboration with the expanded FSF and other bodies, should work to better identify vulnerabilities, anticipate potential stresses, and act swiftly to play a key role in crisis response.
Tasking of Ministers and Experts
10. We are committed to taking rapid action to implement these principles. We instruct our Finance Ministers, as coordinated by their 2009 G-20 leadership (Brazil, UK, Republic of Korea), to initiate processes and a timeline to do so. An initial list of specific measures is set forth in the attached Action Plan, including high priority actions to be completed prior to March 31, 2009.
In consultation with other economies and existing bodies, drawing upon the recommendations of such eminent independent experts as they may appoint, we request our Finance Ministers to formulate additional recommendations, including in the following specific areas:
* Mitigating against pro-cyclicality in regulatory policy; * Reviewing and aligning global accounting standards, particularly for complex securities in times of stress; * Strengthening the resilience and transparency of credit derivatives markets and reducing their systemic risks, including by improving the infrastructure of over-the-counter markets; * Reviewing compensation practices as they relate to incentives for risk taking and innovation; * Reviewing the mandates, governance, and resource requirements of the IFIs; and * Defining the scope of systemically important institutions and determining their appropriate regulation or oversight.
11. In view of the role of the G-20 in financial systems reform, we will meet again by April 30, 2009, to review the implementation of the principles and decisions agreed today.
Commitment to an Open Global Economy
12. We recognize that these reforms will only be successful if grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems. These principles are essential to economic growth and prosperity and have lifted millions out of poverty, and have significantly raised the global standard of living. Recognizing the necessity to improve financial sector regulation, we must avoid over-regulation that would hamper economic growth and exacerbate the contraction of capital flows, including to developing countries.
13. We underscore the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. In this regard, within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports. Further, we shall strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO's Doha Development Agenda with an ambitious and balanced outcome. We instruct our Trade Ministers to achieve this objective and stand ready to assist directly, as necessary. We also agree that our countries have the largest stake in the global trading system and therefore each must make the positive contributions necessary to achieve such an outcome.
14. We are mindful of the impact of the current crisis on developing countries, particularly the most vulnerable. We reaffirm the importance of the Millennium Development Goals, the development assistance commitments we have made, and urge both developed and emerging economies to undertake commitments consistent with their capacities and roles in the global economy. In this regard, we reaffirm the development principles agreed at the 2002 United Nations Conference on Financing for Development in Monterrey, Mexico, which emphasized country ownership and mobilizing all sources of financing for development.
15. We remain committed to addressing other critical challenges such as energy security and climate change, food security, the rule of law, and the fight against terrorism, poverty and disease.
16. As we move forward, we are confident that through continued partnership, cooperation, and multilateralism, we will overcome the challenges before us and restore stability and prosperity to the world economy.
Action Plan to Implement Principles for Reform
This Action Plan sets forth a comprehensive work plan to implement the five agreed principles for reform. Our finance ministers will work to ensure that the taskings set forth in this Action Plan are fully and vigorously implemented. They are responsible for the development and implementation of these recommendations drawing on the ongoing work of relevant bodies, including the International Monetary Fund (IMF), an expanded Financial Stability Forum (FSF), and standard setting bodies.
Strengthening Transparency and Accountability
Immediate Actions by March 31, 2009 * The key global accounting standards bodies should work to enhance guidance for valuation of securities, also taking into account the valuation of complex, illiquid products, especially during times of stress. * Accounting standard setters should significantly advance their work to address weaknesses in accounting and disclosure standards for off-balance sheet vehicles. * Regulators and accounting standard setters should enhance the required disclosure of complex financial instruments by firms to market participants. * With a view toward promoting financial stability, the governance of the international accounting standard setting body should be further enhanced, including by undertaking a review of its membership, in particular in order to ensure transparency, accountability, and an appropriate relationship between this independent body and the relevant authorities. * Private sector bodies that have already developed best practices for private pools of capital and/or hedge funds should bring forward proposals for a set of unified best practices. Finance Ministers should assess the adequacy of these proposals, drawing upon the analysis of regulators, the expanded FSF, and other relevant bodies.
Medium-term actions * The key global accounting standards bodies should work intensively toward the objective of creating a single high-quality global standard. * Regulators, supervisors, and accounting standard setters, as appropriate, should work with each other and the private sector on an ongoing basis to ensure consistent application and enforcement of high-quality accounting standards. * Financial institutions should provide enhanced risk disclosures in their reporting and disclose all losses on an ongoing basis, consistent with international best practice, as appropriate. Regulators should work to ensure that a financial institution' financial statements include a complete, accurate, and timely picture of the firm's activities (including off-balance sheet activities) and are reported on a consistent and regular basis.
Enhancing Sound Regulation
Regulatory Regimes
Immediate Actions by March 31, 2009 * The IMF, expanded FSF, and other regulators and bodies should develop recommendations to mitigate pro-cyclicality, including the review of how valuation and leverage, bank capital, executive compensation, and provisioning practices may exacerbate cyclical trends.
Medium-term actions * To the extent countries or regions have not already done so, each country or region pledges to review and report on the structure and principles of its regulatory system to ensure it is compatible with a modern and increasingly globalized financial system. To this end, all G-20 members commit to undertake a Financial Sector Assessment Program (FSAP) report and support the transparent assessments of countries' national regulatory systems. * The appropriate bodies should review the differentiated nature of regulation in the banking, securities, and insurance sectors and provide a report outlining the issue and making recommendations on needed improvements. A review of the scope of financial regulation, with a special emphasis on institutions, instruments, and markets that are currently unregulated, along with ensuring that all systemically-important institutions are appropriately regulated, should also be undertaken. * National and regional authorities should review resolution regimes and bankruptcy laws in light of recent experience to ensure that they permit an orderly wind-down of large complex cross-border financial institutions. * Definitions of capital should be harmonized in order to achieve consistent measures of capital and capital adequacy.
Prudential Oversight
Immediate Actions by March 31, 2009 * Regulators should take steps to ensure that credit rating agencies meet the highest standards of the international organization of securities regulators and that they avoid conflicts of interest, provide greater disclosure to investors and to issuers, and differentiate ratings for complex products. This will help ensure that credit rating agencies have the right incentives and appropriate oversight to enable them to perform their important role in providing unbiased information and assessments to markets. * The international organization of securities regulators should review credit rating agencies' adoption of the standards and mechanisms for monitoring compliance. * Authorities should ensure that financial institutions maintain adequate capital in amounts necessary to sustain confidence. International standard setters should set out strengthened capital requirements for banks' structured credit and securitization activities.
* Supervisors and regulators, building on the imminent launch of central counterparty services for credit default swaps (CDS) in some countries, should: speed efforts to reduce the systemic risks of CDS and over-the-counter (OTC) derivatives transactions; insist that market participants support exchange traded or electronic trading platforms for CDS contracts; expand OTC derivatives market transparency; and ensure that the infrastructure for OTC derivatives can support growing volumes.
Medium-term actions * Credit Ratings Agencies that provide public ratings should be registered. * Supervisors and central banks should develop robust and internationally consistent approaches for liquidity supervision of, and central bank liquidity operations for, cross-border banks.
Risk Management
Immediate Actions by March 31, 2009 * Regulators should develop enhanced guidance to strengthen banks' risk management practices, in line with international best practices, and should encourage financial firms to reexamine their internal controls and implement strengthened policies for sound risk management. * Regulators should develop and implement procedures to ensure that financial firms implement policies to better manage liquidity risk, including by creating strong liquidity cushions. * Supervisors should ensure that financial firms develop processes that provide for timely and comprehensive measurement of risk concentrations and large counterparty risk positions across products and geographies. * Firms should reassess their risk management models to guard against stress and report to supervisors on their efforts. * The Basel Committee should study the need for and help develop firms' new stress testing models, as appropriate. * Financial institutions should have clear internal incentives to promote stability, and action needs to be taken, through voluntary effort or regulatory action, to avoid compensation schemes which reward excessive short-term returns or risk taking. * Banks should exercise effective risk management and due diligence over structured products and securitization.
Medium -term actions * International standard setting bodies, working with a broad range of economies and other appropriate bodies, should ensure that regulatory policy makers are aware and able to respond rapidly to evolution and innovation in financial markets and products.
* Authorities should monitor substantial changes in asset prices and their implications for the macroeconomy and the financial system.
Promoting Integrity in Financial Markets
Immediate Actions by March 31, 2009 * Our national and regional authorities should work together to enhance regulatory cooperation between jurisdictions on a regional and international level. * National and regional authorities should work to promote information sharing about domestic and cross-border threats to market stability and ensure that national (or regional, where applicable) legal provisions are adequate to address these threats. * National and regional authorities should also review business conduct rules to protect markets and investors, especially against market manipulation and fraud and strengthen their cross-border cooperation to protect the international financial system from illicit actors. In case of misconduct, there should be an appropriate sanctions regime.
Medium -term actions * National and regional authorities should implement national and international measures that protect the global financial system from uncooperative and non-transparent jurisdictions that pose risks of illicit financial activity. * The Financial Action Task Force should continue its important work against money laundering and terrorist financing, and we support the efforts of the World Bank - UN Stolen Asset Recovery (StAR) Initiative. * Tax authorities, drawing upon the work of relevant bodies such as the Organization for Economic Cooperation and Development (OECD), should continue efforts to promote tax information exchange. Lack of transparency and a failure to exchange tax information should be vigorously addressed.
Reinforcing International Cooperation
Immediate Actions by March 31, 2009 * Supervisors should collaborate to establish supervisory colleges for all major cross-border financial institutions, as part of efforts to strengthen the surveillance of cross-border firms. Major global banks should meet regularly with their supervisory college for comprehensive discussions of the firm's activities and assessment of the risks it faces. * Regulators should take all steps necessary to strengthen cross-border crisis management arrangements, including on cooperation and communication with each other and with appropriate authorities, and develop comprehensive contact lists and conduct simulation exercises, as appropriate.
Medium -term actions * Authorities, drawing especially on the work of regulators, should collect information on areas where convergence in regulatory practices such as accounting standards, auditing, and deposit insurance is making progress, is in need of accelerated progress, or where there may be potential for progress. * Authorities should ensure that temporary measures to restore stability and confidence have minimal distortions and are unwound in a timely, well-sequenced and coordinated manner.
Reforming International Financial Institutions
Immediate Actions by March 31, 2009 * The FSF should expand to a broader membership of emerging economies. * The IMF, with its focus on surveillance, and the expanded FSF, with its focus on standard setting, should strengthen their collaboration, enhancing efforts to better integrate regulatory and supervisory responses into the macro-prudential policy framework and conduct early warning exercises. * The IMF, given its universal membership and core macro-financial expertise, should, in close coordination with the FSF and others, take a leading role in drawing lessons from the current crisis, consistent with its mandate. * We should review the adequacy of the resources of the IMF, the World Bank Group and other multilateral development banks and stand ready to increase them where necessary. The IFIs should also continue to review and adapt their lending instruments to adequately meet their members' needs and revise their lending role in the light of the ongoing financial crisis. * We should explore ways to restore emerging and developing countries' access to credit and resume private capital flows which are critical for sustainable growth and development, including ongoing infrastructure investment. * In cases where severe market disruptions have limited access to the necessary financing for counter-cyclical fiscal policies, multilateral development banks must ensure arrangements are in place to support, as needed, those countries with a good track record and sound policies.
Medium -term actions * We underscored that the Bretton Woods Institutions must be comprehensively reformed so that they can more adequately reflect changing economic weights in the world economy and be more responsive to future challenges. Emerging and developing economies should have greater voice and representation in these institutions. * The IMF should conduct vigorous and even-handed surveillance reviews of all countries, as well as giving greater attention to their financial sectors and better integrating the reviews with the joint IMF/World Bank financial sector assessment programs. On this basis, the role of the IMF in providing macro-financial policy advice would be strengthened. * Advanced economies, the IMF, and other international organizations should provide capacity-building programs for emerging market economies and developing countries on the formulation and the implementation of new major regulations, consistent with international standards.
Friday, November 14, 2008
Harper calls for global scrutiny of countries' banking systems
Prime Minister Stephen Harper says he wants countries such as the United States to agree to subject their financial systems to “peer review” by other countries – comments made as he heads to a key economic summit on tackling a global crisis triggered by an American banking and lending meltdown.
“I do think it's incumbent on the United States and others – that as they make regulatory reforms – that we allow peer review mechanisms,” Mr. Harper told reporters in Winnipeg before leaving for the Group of 20 meetings in Washington, D.C.
“[There must be] allow accountable and transparent international peer review mechanisms of our financial systems: to give us evaluations and suggestions. Not to impose solutions – we want to respect national sovereignty – but that we get good objective evaluations that we are able to act on.”
He said however he remains opposed to any push for global governance of financial systems and believes those won't gain traction in Washington.
“Our position is [not] one model of compulsory global governance that I think is unrealistic and will never be accepted. But I think on the other hand if we're going to work on this together, there has be some willingness to be transparent and open to peer review,” Mr. Harper said.
The Prime Minister noted that Canada has previously submitted to international reviews of its financial system and it has been helpful. Canada, he noted, has been praised by the International Monetary Fund as having the soundest financial system in the world right now.
"We have received comments [from past reviews]. Those comments and criticisms have been helpful in making reforms. And we think that's a reasonable part of being part of a integrated global financial market."
Mr. Harper said that Canada does not agree with the two extremes of debate heading into the G20 meetings.
He said some countries are isolationist on reforms and believe they "should strictly keep their own house in order and that's really their own national business" while others "are seeking wide ranging global governance of financial markets" to come from the meetings.
"I believe the government of Canada's position is in neither of these camps. We actually believe that neither of these positions is feasible and realistic," he said.
"First of all I don't think the major economies of the world will obviously consent to have external control over their regulatory systems. But at the same time I think we do need – to the extent we have global capital flows – we do need something where all of us can give each other a significant reassurance about the nature of our system."
Mr. Harper said he hopes the G20 meeting doesn't get bogged down in a debate about how to restructure international organizations amid calls from some developing countries – also referred to as emerging market economies – for permanent seats at the table.
He said Canada's open to giving emerging market economies more of a voice but said it's a long-term discussion.
"What I hope though is that ... we don't get too lost in them at the meeting," he said.
"I think quite frankly if we went to this meeting and ended up discussing – our discussions being dominated – by international economic institutional architecture, that would be equivalent to me meeting with the premiers last week and discussing the constitution as a solution to the economic problems."
Thursday, October 23, 2008
Benedict XVI Weighs in on the Economic Crisis
This evening we had an economist come to speak about the ongoing economic crisis and he made reference to a recent address Pope Benedict gave on the matter. Here is a posting from a Vatican News Site.
The current economic crisis shows the importance of building our lives on the firm foundation of the Word, Benedict XVI affirmed on the first day of the synod of bishops.
The Pope said this today as he offered a meditation to the 244 synod fathers gathered for the first full day of the assembly on the word of God in the life and mission of the Church.
"We see it now in the fall of the great banks," the Holy Father said. "This money disappears; it is nothing -- and in the same way, all these things, which lack a true reality to depend on, and are elements of a second order. The word of God is the basis of everything, it is the true reality. And to be realists, we should count on this reality."
"We should change our idea that matter, solid things, things we touch, are the most solid and secure reality," the Pontiff continued. He noted how Jesus spoke of the two possibilities of building a house on the sand or on a firm rock.
"He who builds only on things that are visible and tangible, on success, a career, money -- he is building on sand," he said. "Apparently these are the true realities, but one day they will pass away."
Built on sand
The Bishop of Rome continued: "And in this way, all these things that do not have a true reality to count on. […] He who builds his house on these realities, on material things, on success, on everything that seems to be, builds on sand.
"Only the Word of God is the foundation of all reality; it is stable like the heavens and more than the heavens. It is the reality. Therefore we should change our concept of realism. The realist is he who recognizes in the Word of God, in this reality apparently so fragile, the basis of everything."
Archbishop Claudio Celli, president of the Pontifical Council for Social Communications, afterward told the press that the Pope had invited his listeners to see economy and finances as a "penultimate reality."
"It is undeniable that other realities, when they are compared to the Word, reveal their limits," he explained. "They are truly penultimate, but not the final truth.
"The heart of the topic that the Pope addressed is not the current economic situation, but the importance of the Word of God in the path of man. And from this light, other dimensions are like clouds that show their flimsiness."
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