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(News Focus) (G20) Global leaders set financial reform drive in motion

All Headlines 20:19 November 12, 2010

By Kim Soo-yeon

SEOUL, Nov. 12 (Yonhap) -- Global leaders took a big step toward preventing another financial crisis as the Group of 20 leading countries showed their support for tougher bank regulations and addressing "too-big-to-fail" problems.

Leaders from the G-20 on Friday endorsed a set of stiffer bank capital rules, called "Basel III," under which banks should hold more common equities to boost their capacity to absorb losses for rainy days.

The efforts to tighten banks' capital and liquidity requirements came amid calls to find ways to prevent a repeat of another financial meltdown as excessive risk bets by financial firms and lax regulation were blamed for the global financial turmoil.

"This new framework will ensure a more resilient financial system by reining in the past excesses of the financial sector and better serving the needs of our economies," said the Seoul Declaration released after the two-day G-20 summit.

The issue of how to regulate so-called systemically important financial institutions (SIFIs) was handled with gravity as their potential failure is feared to have more devastating repercussions on the global financial system, as shown during the course of the recent global financial meltdown.

Global financial regulators agreed to curb "too-big-to-fail" banks by requiring them to beef up additional capacity to absorb losses at the meeting of the Financial Stability Board (FSB) in October. But the definition of SIFIs and the timetable for the rule's application will be determined at subsequent FSB meetings.

G-20 leaders stressed the need to put SIFIs with extensive global operations under more rigorous supervision, calling for related global regulatory bodies to complete the related work process through 2012.

"In the context of loss absorbency, we encourage further progress on the feasibility of contingent capital and other instruments," the statement said.

The FSB is looking at several options including capital surcharges and contingent capital as ways to make SIFIs beef up their loss-absorption capacities.

Chin Dong-soo, chairman of the Financial Services Commission, said in a briefing on Wednesday that banks may be classified into five or six baskets and the selection of SIFIs will be handled by the Basel Committee on Banking Supervision (BCBS).

The G-20 members also made a meaningful achievement by agreeing on the reform of the International Monetary Fund (IMF) quota, experts said.

Leaders from the G-20 endorsed an agreement reached in Gyeongju in October on shifting more than 6 percent of the IMF voting rights from advanced countries to underrepresented nations by 2012, higher than the 5 percent earlier proposed. They also agreed on the reshuffle of the IMF's decision-making body, which will make Europe give up two seats on the 24-member executive board.

"These comprehensive quotas and governance reforms will enhance the IMF's legitimacy, credibility and effectiveness, making it an even stronger institution for promoting global financial stability and growth," the joint statement said.

Analysts said the move underscores the growing influence of emerging countries such as China and India in the world economy, signaling a major shift in the global economic order.

IMF Managing Director Dominique Strauss-Kahn earlier described the agreement as a historic one, saying that it will mark the biggest reform ever in the governance of the global lending body.

The quota readjustment makes China the third-largest player in terms of voting rights, up from the sixth spot, overtaking Germany, Britain and France.


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