IIF submits policy letter to G-20; launches MMG

Institute keen to ensure the G-20 summit remain focused on the broader issues of ensuring market confidence return and regulatory controls are tightened.

WASHINGTON DC - The Institute of International Finance (IIF), which represents more than 380 global financial services institutions, has called for immediate action to break the damaging negative feedback loop between the financial crisis and the global recession in a policy letter to UK prime minister Gordon Brown as host of the forthcoming G-20 summit being held in London.

Josef Ackermann, chairman of the board of directors of the IIF, and chairman of the management board and the group executive committee of Deutsche Bank, said: "It is imperative that a clear signal emerges from the G-20 summit of the specific joint actions to be taken, not only to fight the sharp decline in economic activity seen around the globe, but also to stave off any intentional or unintentional protectionist measures, which would severely deepen the crisis and endanger future prosperity."

The letter calls on the G-20 to act to "counter potential disintegration of the world trading and financial system" and the IIF also supports the creation of a "bad bank" to remove toxic assets from the global banking system. Charles Dallara, managing director of the IIF, said any hesitation on this issue concerning upfront fiscal costs would only serve to exacerbate the problem. He said: "Action is needed now and a pragmatic approach weighing both mark-to-market and cashflow valuations can lead us out of this thicket."

The G-20 summit was also called upon to promote a comprehensive package of financial regulatory reforms designed to establish a more efficient and effective architecture based on heightened global co-operation. To further this goal, the IIF has called for the establishment of a Global Financial Regulatory Coordinating Council, reporting to the Financial Stability Forum. Comprised of regulators and central banks, this council would play a central role in harmonising standards; enhancing cross-border co-operation; co-ordinating supervision; and macro-prudential oversight of the banking, insurance and securities industries. Noting that the commitment to establish colleges of supervisors for major international financial services groups is important, the IIF said the council can ensure that these colleges operate effectively.

The institute has also announced that its board of directors has established a Market Monitoring Group (MMG), co-chaired by Jacques de Larosière, former managing director of the International Monetary Fund and former governor of the Banque de France, and David Dodge, former governor of the Bank of Canada, which consists of international finance leaders and experienced market practitioners, to contribute to the analysis of systemic stability.

The MMG's monitoring of vulnerabilities will focus on risks that have systemic implications, such as liquidity and concentration risk, mispricing of risk, excessive leverage, crowded trades, and the potential for contagion across regions due to the interconnectedness of markets.