International finance rules needed, says Treasury aide.

WASHINGTON -- Recent worry about the growing use of derivatives underlines the need for international rules, Treasury Under Secretary Lawrence Summers said last week.

"I believe concerns of the kind that have recently been raised about derivatives point up the need for greater internationalization in the area of financial regulation," he said in a speech to the Institute of International Economics.

A two-year study by the General Accounting Office, published earlier last week, said banks, brokerage firms, and insurance companies that use derivatives should be subject to uniform rules on managing the risk.

In a wide-ranging speech on international matters, Mr. Summers noted there were some proposals about making more formal the process through which the Group of 7 industrial countries stabilize exchange rates and coordinate their economic policies.

"I have very little sympathy for such ideas," he said, "In a world of proud legislatures and independent central banks, I see little prospect for implementing such an arrangement."

Encouraging Signs

Mr. Summers said the current system of coordinating economic policy "relies on informal quiet communication and persuasion to produce results rather than seeking to pull regular rabbits out of hats" when the need arises.

"I hope that [foreign exchange actions taken two weeks ago by 16 central banks] demonstrated that the G-7 lives and can, when appropriate, act quickly, strongly, and in concert," he said.

Mr. Summers said macroeconomic cooperation could be widened by broadening the set of countries involved. He said U.S. action to support the peso's value following a recent political assassination in Mexico was constructive.

Setbacks 'Not Surprising

Mr. Summers also said it was understandable, considering the increase in U.S. interest rates, that markets in emerging countries have suffered setbacks.

"The problems in emerging markets are, of course, a matter of concern," he told the Institute of International Economics. "[But] it is not surprising."

At the same time, he made it clear he believed that countries that maintain and strengthen internal market-oriented systems will continue to do well in this environment.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER