Obama Hails 'Tough Regulations' at G20

WHAT IS THE G20?
It was set up after the Asian financial crisis in 1999 as a forum for finance ministers and central bankers. The first G20 leaders summit in 2008 was convened to discuss response to economic crisis.
Members are: Argentina, Australia, Brazil, Canada, China, EU, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, UK, USA, joined by Spain, Netherlands, International Monetary Fund and the World Trade Organisation.

President Obama: ''We have agreed to a strong set of reforms''
The world's leading nations have agreed on"tough new regulations" to prevent another global financial crisis, US President Obama said. These relate to the amount of money banks have to hold in reserve and to excessive pay for bankers.

Speaking at the end of a two-day G20 summit,Mr Obama also outlined plans to give emerging economies a greater say in the global economy. The G20 will effectively replace the G8 group of developed economies. Global leaders also announced an agreement to shift the balance of voting in the International Monetary Fund (IMF) towards growing nations such as China at the summit in Pittsburgh.
"We have taken bold and concerted action to forge a new framework for strong, sustainable and balanced growth," said President Obama.
"We have agreed on tough new financial regulations to ensure that the reckless few can no longer be allowed to put the global financial system at risk."

The president said further, that leading nations would now be allowed to assess each others' economic policies. Mr Obama added that the leaders had agreed on rules to ensure that executive pay would be linked to long term financial performance. Many have criticised excessive bonuses as encouraging the kind of short term risk-taking that contributed to the financial crisis.

Despite Mr Obama's declaration, the G20 fell short of agreeing on specific rules on the capital reserves that banks need to hold.

"We commit to developing by the end of 2010, internationally agreed rules to improve both the quantity and quality of bank capital and to discourage excessive [borrowing]," a statement from the G20 leaders said following the summit.

It added that the rules will be phased in once financial conditions improve and recovery is "assured". The leaders also fell short of agreeing on a cap on bonuses, agreeing instead that bonus payments should not be guaranteed for many years, should be deferred in part, and should not exceed a percentage of the bank's revenue.
"We designated the G20 to be the premier forum for our international economic co-operation," the statement said.

G20 Analysis :
The lesson of Pittsburgh is that the old world still can't bring itself to follow through on its rhetoric. It is endeavouring to patch up the failed framework of banking regulation rather than going for more fundamental and radical change.

Currently, China wields 3.7% of IMF votes compared with France's 4.9%, although the Chinese economy is now 50% larger than that of France. The IMF has been criticised in the past as being a group of developed countries trying to lay down the law to struggling countries, which is why the decision to give growing nations more votes is important.
"If you talk to the Chinese or talk to anyone from emerging markets they say the IMF doesn't have legitimacy and... we don't trust the IMF to come and rescue us in a crisis," according to Simon Johnson, former chief economist at the IMF.
"They don't trust it because it's US and West Europe-dominated. That's not fair... and the IMF doesn't function properly as a result."

Nobel prize-winning economist Amartya Sen welcomed the change in voting rights, but said that, "on their own, they won't be able to achieve much... It's not just a question of voting rights, but also a question of broadening the dialogue.