Global Deals in Works On Eve of G-20 Summit

By Anthony Faiola and Glenn Kessler
Washington Post Staff Writers
Friday, November 14, 2008

Nations are close to adopting a series of measures aimed at combating a global recession and laying the groundwork for a broad reconstruction of the international financial system, as world leaders arrive in Washington for a major economic summit this weekend.

Among the most notable measures would be a new body to supervise the regulation of global financial institutions. The "college of supervisors" would bring together international regulators to coordinate oversight of the world's 30 largest financial institutions, according to officials familiar with the plans. The new body would be designed to add an extra level of scrutiny to the way banks are monitored and to catch excessive risk-taking of the sort that contributed to the current economic crisis.

The United States, European countries, Japan and major developing nations are also close to a deal to create an "early warning system" to detect weaknesses in the global financial system before they reach epic proportions, according to diplomatic sources, who spoke on the condition of anonymity because plans were still being worked out.

Meanwhile, with international calls for greater transparency growing, U.S. officials say the Federal Reserve will soon announce the creation of a clearinghouse system to help standardize and limit risk on some of the opaque and exotic financial derivatives that helped bring down Wall Street's investment banks. Even five of the world's wealthiest hedge-fund managers said yesterday that they would support oversight of their industry.

Disagreements remain over the scope and speed of what needs to be done amid the worst financial crisis in decades. The discussions, though, are playing out as evidence mounts that the global economy is plunging even deeper.

Yesterday, Germany became the latest country to fall into recession since the onset of the crisis. The World Bank and the Organization for Economic Cooperation and Development now predict that the developed world overall will contract next year; even in red-hot developing countries such as China and India, growth is projected to slow.

Several of the world leaders arriving in Washington today have blamed the United States for causing the crisis by failing to adequately regulate markets and allowing freewheeling lending. As a result, the United States will face some sense of rebuke at the Group of 20 summit.

President Bush yesterday defended American-style capitalism and warned against overregulation or any efforts "to reinvent" the system. Yet after eight years of deregulation and the expansion of market freedoms, he also called for reforms and greater cooperation among the world's financial authorities.

Broader reforms are needed "to strengthen the global economy over the long term," Bush said in a speech in New York. "This weekend, leaders will establish principles for adapting our financial systems to the realities of the 21st-century marketplace."

To jump-start the global economy, leaders are pushing a series of shorter-term actions. On the heels of similar announcements in Japan, China and Germany, British Prime Minister Gordon Brown is set to unveil a major stimulus package as early as next week. Before heading to Washington, he argued yesterday that nations should also coordinate monetary policy.

After approving billions of dollars in tax rebates this year, Bush has resisted a new surge in federal spending to stimulate the U.S. economy. He is expected to be pressed by several leaders to reconsider this weekend, with some arguing the situation is now so acute that the world cannot wait for the Obama administration to usher in a plan.

"A certain fiscal stimulus is needed," said Arkady Dvorkovich, chief economic adviser to Russian President Dmitry Medvedev. "We need to know we are not the only one to ease fiscal policies. If all countries will agree that it is needed, and each particular country will announce it will do it, then it will be beneficial to everyone."

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