So the G20 meeting is over and has an agreement to spend over $1 trillion through the IMF on nations that are worthy. The other key agreements include:
- a lockdown on the tax regimes of countries where people hide place their wealth. The age of bank ‘secrecy’ is over they say, although I’m not sure that Switzerland, the Caymans and other nations will appreciate that very much. Mind you, the OECD has just listed the tax havens they views as uncooperative, with Costa Rica, Malaysia (Labuan), the Philippines and Uruguay singled out as “jurisdictions that have not committed to the internationally agreed tax standard”;
- a crackdown on light touch regulation and particularly on hedge funds, credit rating agencies and the operations of banks in the Over-the-Counter, or ‘shadow’ banking markets;
- the creation of a new Financial Stability Board, which will focus upon financial stability across all major economies; and
- measures to address the issues in the banking system by preventing excessive leverage and forcing banks to have higher reserve policies so that we avoid being left under-capitalised in a downturn again.
There’s a lot more to it, but I guess the key implications for banks are that there will be a fundamental rethinking of core products and services as:
- all systemically important financial institutions will be covered by the rules, including hedge funds;
- capital requirements will change provisioning, and this may lead to a new Basel III;
- the current Financial Stability Forum becomes the Financial Stability Board and will embrace all G20 countries, the European Commission and Spain;
- the new Board will have a much wider mandate to promote financial stability, set financial guidelines and monitor supervisors for the major cross-border institutions; and
- challenges in using cross-border tax loopholes for profits and products.
On the last one, I just realised something. One of my bank friends works in London two to three days a week, but lives in a tax haven called Monaco to escape tax here. Surely now, he'll move to Costa Rica. Nice weather, and no pressure from the G20 on his tax.
Maybe they should register the bank's head office there too?
Anyway, the G20 Summit was a useful step forward as it gathered clarity from the world's largest nations in stemming this crisis and moving forward. It was useful, even though all of the agreements were made beforehand by the civil servants. It was managed well, as the predicted riots were quelled through strong police action and control (if you didn't notice, the riots in Strasbourg at the NATO meeting have been far worse).
Meanwhile, if you’re interested in learning more from a real expert, then come to the next Financial Services Club meeting on Thursday 16th April 2009 in the London.
David Bagley, Global Head of Compliance for HSBC will discuss his view of the implications of a new G20 Supervisory Framework.
If you wish to come please register.