A Washington-based financial consultant has called for the creation of a global institution to deal with financial market crises and cross-border trade conflicts.
Gary Kleiman, a senior partner at Kleiman International Consultants Inc., said the rapid growth of financial markets in Latin America, Asia, and Eastern Europe, combined with increased market volatility, has outstripped the ability of existing institutions to deal with potential crises.
"We need to find an alternative to the current World Trade Organization agreement for financial services," Mr. Kleiman said. "The existing apparatus has lagged behind market developments."
Mr. Kleiman's proposed institution would supersede the two main international supervisory agencies, the Basel Committee and the International Organization of Securities Commissions. The Basel Committee, established under the auspices of the Basel-based Bank for International Settlements, comprises supervisory representatives from the U.S. Federal Reserve Board and the central banks of major industrialized countries.
Unlike these commissions, the Kleiman proposal for a "World Financial Services Organization" would include members from the private sector as well as from developing countries.
National regulatory agencies have been steadily increasing their coordination ever since a December 1994 financial crisis in Mexico nearly forced its government to default. Earlier this year, the Federal Reserve Bank of New York set up a separate unit to monitor emerging markets.
However, Mr. Kleiman argued that unless both the private sector and emerging market countries are brought into an overall umbrella organization, existing regulatory agencies will be unable to deal with Mexican-style crises except on an "ad hoc" basis.
"Given the globalization of financial services, the increasing frequency and complexity of crises, what you need is a single organization that can address international financial concerns in a coherent fashion," he argued.
But Mr. Kleiman's proposal met with a lukewarm reception from some observers. "I don't know what's wrong with the present system or why it shouldn't continue," said Thomas L. Farmer, general counsel at the Washington-based Bankers Association for Foreign Trade. "It's a complicated and important issue, but it's certainly not as if a lot of thought isn't being given to these issues at top levels at Treasury."
Barbara C. Matthews, bank adviser and regulatory counsel at the Washington-based Institute of International Finance, said that creation of a supra-national institution might not be feasible, even if the Basel Committee and the private sector do need to increase their coordination.
"It could present problematic issues, such as national sovereignty," she noted.
Still others argued that although there is a need to improve the international supervisory framework for financial markets, adding another regulatory institution may not be the answer.
"People have questioned the effectiveness of the Basel Committee, but most people feel the existing mechanisms are adequate, even if they may need improvement," said one Washington-based adviser to an international banking association.
"People are also coming to the conclusion that the most effective institutions are informal ones, where negotiating positions have not hardened into voting blocs."
