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G20 Analysis

The G20 Washington Summit Commitments

Compiled by Jenilee Guebert, G20 Research Group
Commitments contained in the documents issued at the
"Summit on Financial Markets and the World Economy,"
in Washington DC on November 15, 2008
Total number of commitments = 95

Declaration on the Summit on Financial Markets and the World Economy (39 commitments)
• Actions Taken and to Be Taken
• Common Principles for Reform of Financial Markets
• Tasking of Ministers and Experts
• Commitment to an Open Global Economy

Action Plan to Implement Principles for Reform (56 commitments)
• Strengthening Transparency and Accountability
• Enhancing Sound Regulation
• Prudential Oversight
• Risk Management
• Promoting Integrity in Financial Markets
• Reinforcing International Cooperation
• Reforming International Financial Institutions

Declaration on the Summit on Financial Markets and the World Economy (39 commitments)

1. We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems.

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Actions Taken and to Be Taken

2. 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.
   
   
3. [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.
   
   
4. [As immediate steps to achieve these objectives, as well as to address longer-term challenges, we will:] Use fiscal measures to stimulate domestic demand to rapid effect, as appropriate, while maintaining a policy framework conducive to fiscal sustainability.
   
   
5. [As immediate steps to achieve these objectives, as well as to address longer-term challenges, we will:] Help emerging and developing economies gain access to finance in current difficult financial conditions, including through liquidity facilities and program support.
   
   
6. [As immediate steps to achieve these objectives, as well as to address longer-term challenges, we will:] Ensure that the IMF, World Bank and other MDBs have sufficient resources to continue playing their role in overcoming the crisis.

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Common Principles for Reform of Financial Markets

7. 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.
   
   
8. 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.
   
   
9. 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.
   
   
10. 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.
    
    
11. [We commit to implementing policies consistent with the following common principles for reform.] 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.
    
    
12. We will exercise strong oversight over credit rating agencies, consistent with the agreed and strengthened international code of conduct.
    
    
13. 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.
    
    
14. We commit to transparent assessments of our national regulatory systems.
    
    
15. [We commit to implementing policies consistent with the following common principles for reform.] 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.
    
    
16. 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.
    
    
17. [We commit to implementing policies consistent with the following common principles for reform.] Reinforcing International Cooperation: We call upon our national and regional regulators to formulate their regulations and other measures in a consistent manner.
    
    
18. Regulators should enhance their coordination and cooperation across all segments of financial markets, including with respect to cross-border capital flows.
    
    
19. Regulators and other relevant authorities as a matter of priority should strengthen cooperation on crisis prevention, management, and resolution.
    
    
20. [We commit to implementing policies consistent with the following common principles for reform.] 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.
    
    
21. 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.
    
    
22. 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.

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Tasking of Ministers and Experts

23. We are committed to taking rapid action to implement these principles.
    
    
24. We instruct our Finance Ministers, as coordinated by their 2009 G20 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.
    
    
25. 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;
    
    
26. [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:] Reviewing and aligning global accounting standards, particularly for complex securities in times of stress;
    
    
27. [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:] Strengthening the resilience and transparency of credit derivatives markets and reducing their systemic risks, including by improving the infrastructure of over-the-counter markets;
    
    
28. [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:] Reviewing compensation practices as they relate to incentives for risk taking and innovation;
    
    
29. [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:] Reviewing the mandates, governance, and resource requirements of the IFIs;
    
    
30. [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:] Defining the scope of systemically important institutions and determining their appropriate regulation or oversight.
    
    
31. In view of the role of the G20 in financial systems reform, we will meet again by April 30, 2009, to review the implementation of the principles and decisions agreed today.

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Commitment to an Open Global Economy

32. 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.
    
    
33. 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
    
    
34. [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] imposing new export restrictions,
    
    
35. [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] implementing World Trade Organization (WTO) inconsistent measures to stimulate exports.
    
    
36. 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.
    
    
37. 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.
    
    
38. 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.
    
    
39. 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.

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Action Plan to Implement Principles for Reform (56 commitments)

Strengthening Transparency and Accountability

Immediate Actions by March 31, 2009

40. 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.
    
    
41. Accounting standard setters should significantly advance their work to address weaknesses in accounting and disclosure standards for off-balance sheet vehicles.
    
    
42. Regulators and accounting standard setters should enhance the required disclosure of complex financial instruments by firms to market participants.
    
    
43. 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.
    
    
44. 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

45. The key global accounting standards bodies should work intensively toward the objective of creating a single high-quality global standard.
    
    
46. 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.
    
    
47. 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.
    
    
48. Regulators should work to ensure that a financial institution's 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.

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Enhancing Sound Regulation
Regulatory Regimes

Immediate Actions by March 31, 2009

49. 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
    
    
50. 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.
    
    
51. To this end, all G20 members commit to undertake a Financial Sector Assessment Program (FSAP) report and support the transparent assessments of countries' national regulatory systems.
    
    
52. 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.
    
    
53. 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.
    
    
54. 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.
    
    
55. Definitions of capital should be harmonized in order to achieve consistent measures of capital and capital adequacy.

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Prudential Oversight

Immediate Actions by March 31, 2009

56. 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.
    
    
57. The international organization of securities regulators should review credit rating agencies' adoption of the standards and mechanisms for monitoring compliance.
    
    
58. 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.
    
    
59. 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;
    
    
60. [Supervisors and regulators, building on the imminent launch of central counterparty services for credit default swaps (CDS) in some countries, should:] insist that market participants support exchange traded or electronic trading platforms for CDS contracts;
    
    
61. [Supervisors and regulators, building on the imminent launch of central counterparty services for credit default swaps (CDS) in some countries, should:] expand OTC derivatives market transparency;
    
    
62. [Supervisors and regulators, building on the imminent launch of central counterparty services for credit default swaps (CDS) in some countries, should:] and ensure that the infrastructure for OTC derivatives can support growing volumes.

Medium-term actions

63. Credit Ratings Agencies that provide public ratings should be registered.
    
    
64. Supervisors and central banks should develop robust and internationally consistent approaches for liquidity supervision of, and central bank liquidity operations for, cross-border banks.

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Risk Management

Immediate Actions by March 31, 2009

65. 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.
    
    
66. Regulators should develop and implement procedures to ensure that financial firms implement policies to better manage liquidity risk, including by creating strong liquidity cushions.
    
    
67. 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.
    
    
68. Firms should reassess their risk management models to guard against stress and report to supervisors on their efforts.
    
    
69. The Basel Committee should study the need for and help develop firms' new stress testing models, as appropriate.
    
    
70. 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.
    
    
71. Banks should exercise effective risk management and due diligence over structured products and securitization.

Medium-term actions

72. 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.
    
    
73. Authorities should monitor substantial changes in asset prices and their implications for the macroeconomy and the financial system.

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Promoting Integrity in Financial Markets

Immediate Actions by March 31, 2009

74. Our national and regional authorities should work together to enhance regulatory cooperation between jurisdictions on a regional and international level.
    
    
75. 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.
    
    
76. 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.
    
    
77. In case of misconduct, there should be an appropriate sanctions regime.

Medium-term actions

78. 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.
    
    
79. 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.
    
    
80. 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.
    
    
81. Lack of transparency and a failure to exchange tax information should be vigorously addressed.

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Reinforcing International Cooperation

Immediate Actions by March 31, 2009

82. 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.
    
    
83. 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.
    
    
84. 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

85. 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.
    
    
86. 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.

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Reforming International Financial Institutions

Immediate Actions by March 31, 2009

87. The FSF should expand to a broader membership of emerging economies.
    
    
88. 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.
    
    
89. 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.
    
    
90. 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.
    
    
91. 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.
    
    
92. 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

93. 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.
    
    
94. 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.
    
    
95. 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.

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