G-20: Fact Sheet on U.S. Financial Reform and the G-20 Leaders’ Agenda
Since the Pittsburgh Summit, the Group of Twenty (G-20) has responded decisively to the global financial crisis with an international financial regulatory reform agenda that is extraordinary both for its breadth and its level of heightened international cooperation. The agenda has strengthened the resilience of the world’s financial systems, expanded the perimeter of regulation, closed regulatory gaps, and transformed the global financial landscape. The United States and other G-20 members collectively have undertaken major financial sector reforms and strengthened the robustness of financial markets and institutions, while fostering a dynamic and innovative marketplace.
U.S. leadership has played a transformational role throughout by engaging others in a “race to the top” to raise the quality of regulation and level the playing field across major and emerging financial centers. U.S. financial reform, now in its second year of implementation since President Obama signed the historic Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010, is fully consistent with – and in a number of areas surpasses – our G-20 commitments. The G-20’s collective efforts will raise the bar on standards for financial stability, while avoiding fragmentation of markets and protectionism.
Many of the initiatives proposed in Pittsburgh in September 2009 have come to fruition at the Cannes Summit.
- Strengthen Bank Capital and Liquidity: G-20 Leaders committed in Pittsburgh to “improve both the quantity and quality of bank capital and to discourage excessive leverage.” In Seoul, new global capital standards agreed upon in record time – the so-called Basel III agreement – raised the quality and quantity of capital so that banks can withstand losses of the magnitude seen in the crisis. In addition, the new standards will strengthen liquidity requirements and limit banks from operating with excessive leverage. In Cannes, Leaders recommitted to implement Basel agreements along specified timelines.
- Reduce Risk Posed by Large Systemically Important Financial Institutions: G-20 Leaders committed in Pittsburgh to develop enhanced prudential standards for large, interconnected financial institutions and to develop the capacity to effectively resolve such institutions. In Cannes, G-20 Leaders endorsed a three-pronged framework for large, interconnected financial institutions that establishes: new international standards for resolution regimes so that large cross-border institutions can be resolved without the risk of severe disruption or taxpayer exposure to loss; enhanced supervisory regimes; and a capital surcharge for global systemically important banks.
- Make Derivatives Markets More Transparent and Safer: Pursuant to the commitments made at the Pittsburgh Summit, G-20 Leaders have adopted new principles to promote international convergence across derivatives markets. Moving derivatives trading onto exchanges and electronic platforms, and requiring them to be centrally-cleared and reported increases transparency and reduces risk. Leading the way, the United States is on track to meet the G-20’s end-2012 deadline for implementing new rules in an internationally consistent and nondiscriminatory way. In Cannes, U.S. leadership encouraged others to implement their G-20 commitments in an equally robust manner. The United States and the European Union are working closely together to help ensure that detailed aspects of our derivatives frameworks are aligned in order to eliminate the possibility of regulatory arbitrage.
President Obama’s leadership in Cannes also powered the launch of two new initiatives to further improve the G-20’s ability to strengthen the safety and soundness of our financial systems, and to identify potential risks to financial system stability.
- Establish Global Margin Standards on Non-Centrally Cleared Derivatives: G-20 Leaders in Cannes endorsed new work to establish global standards for margin requirements on non-centrally cleared derivatives trades that will incentivize central clearing. This U.S.-led initiative complements the Leaders’ call in Pittsburgh for higher capital requirements on non-centrally cleared contracts.
- Identify Parties to Financial Transactions: G-20 Leaders in Cannes endorsed new work, arising out of U.S. leadership, to establish one global system to uniquely identify parties to financial transactions. The Legal Entity Identifier (LEI) initiative will support better understanding of true exposures and interconnectedness among and across financial institutions. We need such understanding to assess and reduce risks to the financial system.
The G-20 has made extensive progress in transforming the financial regulatory landscape globally. Leaders now are focusing on implementation, at a pace that reduces risks to the economic recovery and ensures a level playing field around the world. U.S. leadership has been at the forefront of these efforts. The United States will continue to emphasize the critical role of the G-20 in developing a strong, collective response to overcome near-term vulnerabilities, and put in place the building blocks for more balanced and durable growth going forward.