October 28, 2008
President Bush will chair his last international meeting in Washington November 15. Responding to EU pressure, he has invited the 20 heads of government for a review of the ground-rules and monitoring procedures of the international financial markets, in view of imposing stricter discipline on financial institutions to help prevent another financial cataclysm.
That may be useful; but it would be naive to believe that the international community will succeed where major countries, above all the USA, have miserably failed.
It was the unbelievable collusion between irresponsible bankers, Congressmen and the very Chairman of the Federal Reserve, ignoring the increasing complexities and risks of “innovative” financial instruments, that has led to the collapse of the US financial system.
We may – and should – blame bankers for enticing potential clients to take higher mortgages than their incomes would warrant or to invest in derivatives with excessive risks. But the main reproach has to be addressed to those in charge of imposing the restraints necessary for keeping bankers from engaging in off-balance sheet investments or in gambling operations that have little to do with the core banking functions.
We cannot expect an international institution like the IMF to make up for the shortcomings of national banking regulations and supervision, whether in Japan, Germany, the USA, Iceland or Belgium.
National or EU supervision will have to remain the main pillar by which to prevent excesses in banking and finance. The best international rules will not be of much help if national authorities fail to transpose them speedily and correctly, as we have seen with the Basle rules for minimum capital requirements.