1. FINANCIAL REGULATION AND THE G20 IS THERE A GAP IN THE GOVERNANCE STRUCTURE? MIKE CALLAGHAN LOWY INSTITUTE 1

2. QUESTIONS How do we assess progress? Is the FSB-G20 relationship right? Is there a gap in governance/accountability structure? 2

3. G20 FOCUS ON FINANCIAL REGULATION Prior to crisis, unlikely topic for Leaders summit Was a political response to a financial crisis Washington G20 summit adopted FSF report. G20 leaders now associated with detail of FSB 3

4. WHERE ARE WE UP TO? Process and timetable driven Basel 3 – long-way to go Less progress on reforming derivative markets Some banks remain ‘too-big-to fail’ Insufficient prioritization Impact analysis carried out ex-post Insufficient prioritization of agenda Insufficient attention on need to change behaviour. 4

5. How should we assess progress? Objective-stable and efficient financial system But how will it look? -Less complex -More transparent -Higher and better quality capital -Risk properly priced -Similar prudential standards for similar risks -Efficient, deep, broad access to finance 5

6. NAVIGATING BY SIGHT - Blanchard No agreed vision what future financial system should look like. Unsure about right role of securitization, right scope for derivatives, role of market versus banks, role of shadow banking. Uncertainty and disagreement about effects of capital ratios on funding costs. 6

7. PREVENTING NEXT CRISIS: GONE FAR ENOUGH? - Response to date micro-regulation. Deeper solutions? - Very large capital requirements - Reduce instability of debt markets - Move to a much simpler, smaller financial system - Substantial taxes on parts of system 7

8. IMPACT ON GROWTH? Are the structural changes resulting in not only a safer system but also one that promotes better economic outcomes? How to assess the trade-off between safety of the financial system and economic growth. Need to avoid ‘material unintended consequences’ 8

9. QUESTIONS Is the focus on achieving financial stability at ‘any cost’? Has the process been too process and timetable driven? Is the prioritization of the reforms appropriate? Who assesses unintended consequences? Is there a gap in the governance structure? 9

10. NEW MINISTERIAL BODY G20 FM/ Governors/ regulatory heads PLUS non-G20 members of IMFC ( and HK). Jointly chaired by chairs FSB and IMFC. Examine progress in development and implementation of standards and promoting growth Secretariat- FSB and IMF staff Meet at IMF Spring and Annual meetings and replace G20 FM meeting. Joint chairs send report to G20 leaders. 10

11. ADVANTAGES Financial system is important, deserves more dedicated ministerial oversight. Ministers and Governors can assess ‘higher order’ issues, such as getting the balance right. Involvement of IMFC addresses legitimacy concerns over FSB. More effective use of G20 FM time. 11