World Leaders Agree to Seek Major Reform
Sunday, November 16, 2008
World leaders holding an emergency meeting to combat the economic crisis agreed yesterday to a far-reaching action plan that, over the next 4 1/2 months, would begin to reshape international financial institutions and reform worldwide regulatory and accounting rules.
The leaders' 11-page statement spoke of broad principles, leaving the details to be worked out by lower-level aides before another summit meeting in April, after Barack Obama assumes the presidency. But the gathering in Washington of the nearly two dozen nations -- from every region of the world -- reflected the new balance of power emerging in the aftermath of a financial crisis that has devastated even well-run economies, a wrenching process that British Prime Minister Gordon Brown has dubbed "the birth pangs of this new global order."
Under the plans outlined by the leaders, countries such as China, Brazil and India would gain greater roles and responsibilities as part of a restructuring of the international financial system, while European leaders won a commitment to new regulations and controls on banks, rating agencies and exotic financial securities. The leaders also agreed that a dramatic failure of market oversight in "some advanced countries" was among the root causes of the financial crisis, an implicit rebuke of the United States.
"I'm a free market person," President Bush told reporters after the summit ended, "until you're told that if you don't take decisive measures then it's conceivable that our country could go into a depression greater than the Great Depression."
The Europeans got "virtually everything" they sought at the summit, French President Nicholas Sarkozy crowed afterward at a news conference. He said it had been difficult to persuade Bush to hold the summit, but the results were worth it. "America is still the No. 1 power in the world," he noted. "Is it the only one? No, it isn't."
The leaders, representing the Group of 20 economic powers, Spain, the Netherlands, the United Nations and other international organizations, met over dinner at the White House on Friday. They then continued their discussions yesterday arrayed in a square in the central hall of the 19th-century National Building Museum, beneath soaring 159-foot high ceilings.
"We are determined to enhance our cooperation and work together to restore global growth and achieve needed reforms in the world's financial systems," the leaders declared in their communique.
The leaders agreed to set up a new regulatory body, "a college of supervisors," to examine the books of major financial institutions that operate across national borders, so regulators could begin to have a more complete picture of banks' operations. They demanded greater scrutiny of hedge funds and the completion 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.
Leaders also agreed to submit their countries' financial systems to regular, vigorous reviews by the International Monetary Fund -- assessments that some countries, including the United States, had long resisted. And they urged new constraints on the pay schemes at financial firms that "reward excessive short-term returns or risk-taking."
Sarkozy was especially pleased by the mention of executive compensation, though the communique noted that action could be voluntary or regulatory in nature. "Have you ever seen in the Anglo-Saxon world even discussion to have rating agencies downgrade the banks where executive compensation has [encouraged] them to take too much risk? I have never seen it," he said.
Senior Bush administration officials played down Sarkozy's comments, arguing that the agreement yesterday did not signify a "pro-regulatory" shift by the administration but rather an acknowledgement that the regulatory system needed to be updated. They spoke on condition of anonymity under ground rules set by the White House.
Obama stayed away from the summit, though the White House extensively briefed one of his senior advisers on the deliberations and two of the president-elect's representatives met with 17 leaders or their top aides on the sidelines. Many sections in the communique may please Obama, but at least one pledge to which Bush agreed -- a 12-month hiatus on protectionist measures -- could be viewed as limiting his options.