European Union (EU) leaders agreed on a blueprint Friday for reform of the global financial system, forging a joint front at a summit of 20 major economic powers in Washington on November 15.
Here are the main points of the EU's blueprint.
1. All-inclusive financial regulation.
No financial institution, no market segment and no territory can escape proportionate and adequate regulation or at least oversight, with no more exception for rating agencies, geared funds and offshore financial centers.
2. Increased transparency and accountability.
The new international financial system must be based on principles of accountability and transparency, the EU leaders said.
Transparency of financial transactions must be ensured by means of a more comprehensive information system, and arrangements conducive to excessive risk taking must be overhauled, particularly debt securitization procedures and executives' pay policy.
Accounting standards applicable to financial institutions will have to be revised to ensure that they do not contribute to creating speculative bubbles in periods of growth and make the crisis worse at times of economic downturn.
3. Risk assessment and early warning system.
The new international financial system must allow risks to be assessed so as to prevent crises, according to the blueprint.
The large international financial groups will have to be monitored in a coordinated manner as between the different national authorities concerned, by the setting up of colleges of supervisors.
An early warning system must be established to identify upstream increases in risks or the formation of bubbles in the valuation of different economic assets.
More generally, multilateral surveillance will have to be reformed in order to prevent and eliminate world imbalances.
4. Central role of the International Monetary Fund (IMF)
The IMF should be given a central role in a more efficient financial architecture, tasked to prevent financial crisis.
The IMF's intervention tools will have to be modernized to enable it to intervene preventively and its resources will have to be increased to enable it to give effective assistance to countries affected by the crisis.
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