The dramatic exit of Dominique Strauss-Kahn from the International Monetary Fund and the selection of Christine Lagarde as the fund's new managing director have put the international spotlight on the process by which leadership of international financial bodies is determined.

There is a lesser known international financial body, but one with growing clout in the field of international financial regulation, that is facing leadership change (though under very different circumstances from the IMF): the G-20-created Financial Stability Board.

The G-20's mandate to the FSB, issued in 2009 amid the global financial crisis, made the FSB the global focal point for international coordination on financial regulation.

The current chairman of the FSB, Mario Draghi (governor of the Bank of Italy), has recently been chosen to head the European Central Bank replacing Jean-Claude Trichet whose term ends in November. This will open the FSB to new leadership and is a pointed opportunity for the G-20 to focus on the FSB's role in reducing the risk of future financial crises.

The G-20 has given the FSB an expansive agenda: bank capital and liquidity requirements, resolution of failed financial institutions with systemic implications, OTC derivatives, peer review of country compliance with standards, effectiveness of supervision of financial institutions, bank executive compensation, and the undefined area of "shadow banking." FSB accomplishments the past two years have been significant.

However, the scope and intensity of responsibility challenges the FSB's internal institutional capacity. The FSB's governance processes remain underdeveloped and lack transparency. Heads-of-state at the G-20 Seoul Summit last November asked the FSB to report back on institutional issues.

Political consensus at the G-20 level is increasingly fragmented. As international debate continues about the economic impact of regulatory proposals and implementation approaches, national divergence in regulatory action is a growing threat.

The private, not-for-profit Council on Global Financial Regulation in April 2011 published an initial report, "Practical Measures for Enhancing International Financial Regulatory Coordination."  This report focused on practical medium-term proposals for achieving improved international coordination, while respecting the reluctance of sovereign states to cede authority to international bodies.

National regulatory bodies will be the primary actors in that process for the foreseeable future. Accordingly, the report calls for enhancing the current framework, particularly through steps that facilitate international alignment of domestic financial regulatory standards and encourage more pro-active work by existing international bodies.

Three dimensions of the FSB's work suggest near-term G-20 attention:

First, the time is right for the FSB to move toward more institutionalized internal processes, while avoiding bureaucracy. Serious consideration should be given to making the chair of the FSB a full-time position, filled through a transparent process, with clear criteria for selection. Professional merit and relevant experience, without regard for nationality, should be the paramount considerations.

The FSB should devise internal procedures that provide greater regularity in process, more effective participation of its broad membership, and larger transparency in its internal workings. The FSB will need to develop a workable balance between the desire of members to be heard and the organization's efficiency.

The FSB should extend its working relationships beyond today's bank-centric focus to incorporate broader components of the financial sector (including staffing with deep industry experience) in response to the widening scope of its agenda.

Second, Basel III has generated intense debate on the economic impact of new regulatory reforms. International standard-setting bodies require close consultation with financial market participants on the effect of proposed regulatory measures on economic performance, credit availability and financial innovation.

The right balance is difficult to define, but will be helped by openness, including structured channels for financial industry input on proposed regulatory initiatives. This culture of industry engagement should be encouraged by the G-20 and become commonplace in the operating style of the FSB.

Third, during the depths of the global financial crisis, the world saw an extraordinary level of cooperation among G-20 governments directed toward restoring stability. As the international financial system has stabilized, tendencies toward national action and fragmentation have emerged.

Financial industries and regulators are rightly concerned about the competitive implications of divergent regulation. Although certain differences in market structures across countries and related regulation can be accommodated without serious risk of regulatory arbitrage, the G-20 in the run-up to the Cannes Summit in November should demonstrate renewed political commitment to avoiding regulatory divergence that heightens systemic risks and threatens diversion of capital and business to lightly regulated jurisdictions.

The requirements of economic growth and financial stability place renewed responsibility on the G-20 to shape the FSB in the direction of transparency, efficiency, heightened institutional capacity, avoidance of national divergence and balance between regulatory protections and market discipline.

Olin L. Wethington, a former assistant secretary of the U.S. Treasury, is a member and director of the Council on Global Financial Regulation.