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In the run-up to the World Bank/IMF meetings a year ago, it had still seemed possible that the financial industry could put its own house in order by codifying and implementing new best practices for risk management. But over the next six months the global financial system came close to outright collapse.
So now, as the meetings in Istanbul unfold, government policymakers and regulators around the world are striving to agree new rules to make the financial system safer. The level of capital in the banking system will go up. This will be high-quality capital according to definitions the Basle Committee on Banking Supervision is due to deliver before the end of this year. By the end of next year, the US Treasury wants full agreement on new international standards on capital and liquidity. Much remains to be done. Euromoney has a few recommendations.
The banking industry will assail the official sector with arguments against imposing leverage ratios, arguing that they take no account of the riskiness of assets being leveraged and might impose a burden on banks that will make them less able to lend into the economic recovery.