The Group of 30 emerged last week with concepts it hopes will help steer the word financial markets toward responsibility and clarity. Led by G30 trustees chairman Paul A. Volcker, the nonprofit organization of scholars, central bankers, and financial sector executives released a “program for reform” last week. The document, surprisingly devoid of jargon and euphemism, will be shared with global public and private leaders. Volcker, who chair’s the Obama administration’s Economic Recovery Advisory Board, promised to deliver the report to the Oval Office. The former Fed chairman noted that the report is “not a response to what’s happened in the markets recent months, but is informed by them. This is not a blueprint,” he added.
The four core recommendations are:
1. Gaps and weaknesses in the coverage of prudential regulation and supervision must be eliminated. All systemically significant financial institutions, regardless of type, must be subject to an appropriate degree of prudential oversight.
2. The quality and effectiveness of prudential regulation and supervision must be improved. This will require better-resourced prudential regulators and central banks operating within structures that afford much higher levels of national and international policy coordination.
3. Institutional policies and standards must be strengthened, with particular emphasis on standards for governance, risk management, capital, and liquidity. Regulatory policies and accounting standards must also guard against procyclical effects and be consistent with maintaining prudent business practices.
4. Financial markets and products must be made more transparent, with better-aligned risk and prudential incentives. The infrastructure supporting such markets must be made much more robust and resistant to potential failures of even large financial institutions.
These core principles are followed by 18 more specific recommendations. G30 chairman Jacob A. Frenkel called the report a “reasonable and sensible agenda for policy debate.”