Project World Awareness
Special Report: Can this committee save the world from bankers?
(Reuters) – Was the creation of the Financial Stability Board last year a bloodless coup by the world’s central bankers? A repeal of the U.S. Declaration of Independence? That’s certainly how some in America view the new body which is supposed to plug the holes in the world’s financial regulations.
Here’s a taster from Ellen Brown, author of “Web of Debt: The Shocking Truth about our Money System”, on huffingtonpost.com in June 2009. Pointing to the fact that the FSB‘s secretariat is based at the Bank for International Settlements’ headquarters in Basel, Switzerland, Brown warned that “to the wary, this is not a comforting sign. The BIS has a dark and controversial history”, and was, according to one professor she quotes, created as the apex of “a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.”The “coup”, she argued, quoting blogger Marilyn Barnewall, lies in the fact that the United States has only one vote of 20 in the FSB. “In other words, the group will be largely controlled by European central bankers. My guess is, they will represent themselves, not you and not me and certainly not America.”
That such extreme theories can be provoked by a body with just 20 staff, housed in a round brown tower in Switzerland’s third biggest city, probably says more about American bloggers than it does about the FSB. But that’s not to say that the FSB, set up in April 2009 by the world’s top 20 economies in response to the financial crisis, is not already a very influential institution.
In its first year, its small, unelected group of officials, little known outside financial markets, has wielded tremendous power in reshaping how banks work. U.S. Treasury secretary Timothy Geithner describes it as “in effect, a fourth pillar of the architecture” of international cooperation alongside the IMF, the World Bank, and the WTO.
It’s still a work in progress. The FSB’s broad license to roam across long established regulatory fiefdoms has sparked inevitable power struggles with other regulators. Emerging states in Asia could clash with older forces, Europe and the United States. It’s not even clear that the FSB will have the backing to push reforms through in the future. So far, it doesn’t even have its own budget or office, let alone any binding powers.
Despite all that, its reach is remarkable. “The FSB is now like a roof over all the global standard setters,” says a European member of the FSB, making no effort to hide a broad smile.
THE ROOF
Officially, the FSB’s role is to keep an eye on potential weaknesses in the financial system, and to encourage the world’s regulatory bodies to share information about how they address those problems.
One early achievement has been to speed up agreement on tough new rules about the amount of capital that banks must hold. Basel III, as the rules are known, will force some banks to raise extra capital in the markets as a buffer against the kind of liabilities the crisis has foisted on taxpayers. Unveiled in draft version last December and set to be formally approved by G20 leaders gathering in Seoul later this week, the new rules replace an accord known as Basel II, which took a decade of haggling.
“Without the apparatus of the FSB, the Basel reform would never have gone through at the speed it has,” says David Green, a former Bank of England and Financial Services Authority official.
But the FSB has its sights set on much, much more. Its charter says it can undertake “any other task agreed by its members in the course of its activities and within the framework of its charter”. Though it was set up by, and continues to be beholden to the G20 group of countries, the FSB has a degree of independence that to some extent enables it to escape their control and become an actor in its own right.
“It’s still a coordinating body but a much more active and assertive coordinator because the G20 governments have decided it is effectively their secretariat in financial regulation,” Green says.
BIG AMBITIONS
How does it work? As blogger Marilyn Barnewall complained, the official at the head of the FSB is a European central banker: Mario Draghi, the 63-year old head of the Bank of Italy. A former vice-president at Goldman Sachs, Draghi’s a banker through and through, widely admired by his fellow officials and known in Italian media as SuperMario for the frenetic pace of his work in the run-up to the creation of the single currency.
Here’s a taster from Ellen Brown, author of “Web of Debt: The Shocking Truth about our Money System”, on huffingtonpost.com in June 2009. Pointing to the fact that the FSB’s secretariat is based at the Bank for International Settlements’ headquarters in Basel, Switzerland, Brown warned that “to the wary, this is not a comforting sign. The BIS has a dark and controversial history”, and was, according to one professor she quotes, created as the apex of “a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.”
The “coup”, she argued, quoting blogger Marilyn Barnewall, lies in the fact that the United States has only one vote of 20 in the FSB. “In other words, the group will be largely controlled by European central bankers. My guess is, they will represent themselves, not you and not me and certainly not America.”
That such extreme theories can be provoked by a body with just 20 staff, housed in a round brown tower in Switzerland’s third biggest city, probably says more about American bloggers than it does about the FSB. But that’s not to say that the FSB, set up in April 2009 by the world’s top 20 economies in response to the financial crisis, is not already a very influential institution.
In its first year, its small, unelected group of officials, little known outside financial markets, has wielded tremendous power in reshaping how banks work. U.S. Treasury secretary Timothy Geithner describes it as “in effect, a fourth pillar of the architecture” of international cooperation alongside the IMF, the World Bank, and the WTO.
It’s still a work in progress. The FSB’s broad license to roam across long established regulatory fiefdoms has sparked inevitable power struggles with other regulators. Emerging states in Asia could clash with older forces, Europe and the United States. It’s not even clear that the FSB will have the backing to push reforms through in the future. So far, it doesn’t even have its own budget or office, let alone any binding powers.
Despite all that, its reach is remarkable. “The FSB is now like a roof over all the global standard setters,” says a European member of the FSB, making no effort to hide a broad smile.
THE ROOF
Officially, the FSB’s role is to keep an eye on potential weaknesses in the financial system, and to encourage the world’s regulatory bodies to share information about how they address those problems.
One early achievement has been to speed up agreement on tough new rules about the amount of capital that banks must hold. Basel III, as the rules are known, will force some banks to raise extra capital in the markets as a buffer against the kind of liabilities the crisis has foisted on taxpayers. Unveiled in draft version last December and set to be formally approved by G20 leaders gathering in Seoul later this week, the new rules replace an accord known as Basel II, which took a decade of haggling.
“Without the apparatus of the FSB, the Basel reform would never have gone through at the speed it has,” says David Green, a former Bank of England and Financial Services Authority official.
But the FSB has its sights set on much, much more. Its charter says it can undertake “any other task agreed by its members in the course of its activities and within the framework of its charter”. Though it was set up by, and continues to be beholden to the G20 group of countries, the FSB has a degree of independence that to some extent enables it to escape their control and become an actor in its own right.
“It’s still a coordinating body but a much more active and assertive coordinator because the G20 governments have decided it is effectively their secretariat in financial regulation,” Green says.
BIG AMBITIONS
How does it work? As blogger Marilyn Barnewall complained, the official at the head of the FSB is a European central banker: Mario Draghi, the 63-year old head of the Bank of Italy. A former vice-president at Goldman Sachs, Draghi’s a banker through and through, widely admired by his fellow officials and known in Italian media as SuperMario for the frenetic pace of his work in the run-up to the creation of the single currency.
Another problem – and a reason for the frantic pace – is that the FSB is in a race. Past crises have often been followed by a frenzy of rulemaking activity. Over time, though, momentum can slow. “The FSB is a work in progress but it’s not entirely clear a work in progress to what,” says Nicolas Veron of Brussels-based think tank Bruegel.
Agreeing on Basel III in such a short time was a major feat, but it will be harder to secure global agreement on steps to make safe the world’s “too big to fail” financial institutions. The Seoul summit was at one stage meant to agree a package of measures to beef up Basel III for the SIFI institutions, but has failed to get beyond broad principles. There is no consensus on whether such big lenders should face capital surcharges, because emerging markets say their banks don’t need extra safeguards. Even if the list is agreed, keeping it secret and away from speculators – as seems to be the plan – would prove almost impossible.
“The credibility of the FSB and G20 rests on implementing those difficult agreements. The jury is out,” says David Wright, who was until October a top official representing the European Commission on the FSB.
The FSB’s independence from its political masters will be tested next year, when it may publish names of countries that won’t cooperate in sharing supervisory information according to standards set by the IMF and IOSCO. If it pushes ahead with that plan, the move would extend the FSB’s influence even further – to more than 100 countries from its current base of 20, including offshore havens. Some G20 countries will also be on the “blacklist” unless they change their ways in time.
The FSB’s fate will also hinge on keeping U.S. backing for the broader G20 process, whose summits provide the detailed conclusions that map out its work and lend it authority. A G20 process mired in spats between China and the United States over currencies, coupled with Congressional gridlock in the wake of U.S. mid-term elections, could leave the FSB sidelined once its current work winds down, regulators say.
If that happens, what once seemed to some Americans like a threat to democracy would boil down to little more than a political PR stunt, leaving taxpayers the world over exposed to the risks run by the banks to which they entrust their wages. The bloggers would not be happy. (Editing by Sara Ledwith and Simon Robinson)
http://www.reuters.com/article/idhttp://reut.rs/9ILYnm
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Wednesday, November 10, 2010
Special Report: Can this committee save the world from bankers? | via @rockingjude Project World Awareness
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