(News Focus) (G20) Global leaders set financial reform drive in motion

By Kim Soo-yeon
SEOUL, Nov. 12 (Yonhap) -- Global leaders took a big step toward preventing
another financial crisis as the Group of 20 leading countries showed their
support for tougher bank regulations and addressing "too-big-to-fail" problems.
Leaders from the G-20 on Friday endorsed a set of stiffer bank capital rules,
called "Basel III," under which banks should hold more common equities to boost
their capacity to absorb losses for rainy days.
The efforts to tighten banks' capital and liquidity requirements came amid calls
to find ways to prevent a repeat of another financial meltdown as excessive risk
bets by financial firms and lax regulation were blamed for the global financial
turmoil.
"This new framework will ensure a more resilient financial system by reining in
the past excesses of the financial sector and better serving the needs of our
economies," said the Seoul Declaration released after the two-day G-20 summit.
The issue of how to regulate so-called systemically important financial
institutions (SIFIs) was handled with gravity as their potential failure is
feared to have more devastating repercussions on the global financial system, as
shown during the course of the recent global financial meltdown.



Global financial regulators agreed to curb "too-big-to-fail" banks by requiring
them to beef up additional capacity to absorb losses at the meeting of the
Financial Stability Board (FSB) in October. But the definition of SIFIs and the
timetable for the rule's application will be determined at subsequent FSB
meetings.
G-20 leaders stressed the need to put SIFIs with extensive global operations
under more rigorous supervision, calling for related global regulatory bodies to
complete the related work process through 2012.
"In the context of loss absorbency, we encourage further progress on the
feasibility of contingent capital and other instruments," the statement said.
The FSB is looking at several options including capital surcharges and contingent
capital as ways to make SIFIs beef up their loss-absorption capacities.
Chin Dong-soo, chairman of the Financial Services Commission, said in a briefing
on Wednesday that banks may be classified into five or six baskets and the
selection of SIFIs will be handled by the Basel Committee on Banking Supervision
(BCBS).
The G-20 members also made a meaningful achievement by agreeing on the reform of
the International Monetary Fund (IMF) quota, experts said.
Leaders from the G-20 endorsed an agreement reached in Gyeongju in October on
shifting more than 6 percent of the IMF voting rights from advanced countries to
underrepresented nations by 2012, higher than the 5 percent earlier proposed.
They also agreed on the reshuffle of the IMF's decision-making body, which will
make Europe give up two seats on the 24-member executive board.
"These comprehensive quotas and governance reforms will enhance the IMF's
legitimacy, credibility and effectiveness, making it an even stronger institution
for promoting global financial stability and growth," the joint statement said.
Analysts said the move underscores the growing influence of emerging countries
such as China and India in the world economy, signaling a major shift in the
global economic order.
IMF Managing Director Dominique Strauss-Kahn earlier described the agreement as a
historic one, saying that it will mark the biggest reform ever in the governance
of the global lending body.
The quota readjustment makes China the third-largest player in terms of voting
rights, up from the sixth spot, overtaking Germany, Britain and France.
sooyeon@yna.co.kr
(END)

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