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.Most regulators are a few steps behind the fast-movingchanges in the capital markets.Furthermore if new products or finan-cial transactions fall outside the existing jurisdiction of the regulatory342 t oo bi g t o s a ve ?agencies, it may take a year or more to pass legislation broadening theirjurisdiction.For these reasons, the current financial crisis has spawned many effortsto increase coordination and harmonize standards among internationalregulators.Academics have made thoughtful proposals to start a new inter-national organization, loosely modeled on the World Trade Organization(WTO), that would have the power to prescribe international standards forregulating financial institutions.61 Politicians have been more radical andgrander, with French President Sarkozy calling on global leaders to adoptwide-ranging reforms for  re-founding capitalism, 62 while British PrimeMinister Gordon Brown has advocated  a new Bretton Woods a newfinancial architecture of the years ahead. 63In my view, these far-reaching proposals are politically unvi-able to the extent that they require all major countries to agreeon uniform standards and bind themselves to an enforcementmechanism (such as the WTO procedures for binding resolu-tions of disputes).Every country jealously protects its sovereignty.AsBarney Frank, Chairman of the House Financial Services Committee,declared,  no one is going to give up their sovereignty, especially inimportant areas like financial services.64 No country will cede controlof its financial regulation to any global organization because, at the end ofthe day, the costs of bank failures must be absorbed by each national gov-ernment.As the saying goes, banks are international in life, but nationalin death.Moreover, no country easily embraces a global uniform stand-ard because each country wants to make its own trade-offs between65financial stability and financial innovation in setting its standards.Most of these proposals implicitly assume that the current financialcrisis would have been prevented if the major countries had agreed onglobal standards for regulating financial institutions.In fact, there was oneharmonized global standard for financial regulation the Basel accordson bank capital requirements, developed painstakingly through years ofinternational negotiations.However, the Basel accords were an impor-tant factor causing the excesses in the securitization of mortgages theheart of the financial crisis.Basel I, which was effective in the UnitedStates until the start of 2008, treated all residential mortgages and allsecurities backed by residential mortgages as low-risk assets that couldbe supported by very small amounts of bank capital.(See Chapter 6.) The International Implications of the Financial Crisis 343Build Up Existing International OrganizationsGiven the challenges of creating uniform financial standardsand international enforcement mechanisms, the major coun-tries should address the global aspects of the financial crisisthrough existing international organizations like the IMF.TheUnited States should continue to strongly support the IMF, which offersconditional loans to struggling countries in the emerging markets.Morerecently, the IMF began to offer loans to healthy developing countries,like Mexico, without the usual IMF demands to raise interest rates andreduce public expenditures.66 The availability of nonconditionalIMF loans should help rebalance global capital flows by allowingthese developing countries to stop hoarding U.S.dollars.In theevent of any future attack on their local currency, these coun-tries would automatically have the fi nancial support of the IMF.In 2009, the countries in the Group of 20 (G20) the largestdeveloped and developing economies agreed in principle to increasethe IMF s lending capacity from $250 billion to $750 billion.67 The EUand Japan are each supplying $100 billion in loans to the IMF, plus$10 billion from Canada and $4.5 billion from Norway.68Although theObama Administration also came through with a $108 billion line ofcredit to the IMF, it was a hard sell in Congress.To gain 50 swing votesfrom antiwar Democrats, the Administration had to delete an unrelatedamendment to prohibit the release of photos showing U.S.soldiersabusing Iraq war prisoners.69The willingness of China and other large emerging economies tocontribute more to the IMF depends on whether it will revise its vot-ing allocation to give them more recognition.70 At the start of 2009, forexample, Belgium had more votes in the IMF than India and Brazil, andonly 1.57 percent fewer votes than China.Although the IMF has set up acommittee to study a realignment of voting rights, smaller industrializedcountries are reluctant to lose much voting power.71 As shown in Table13.3, the current proposals would increase the voting rights of China,India, and Brazil each by less than 0.50 percent.Thus, the UnitedStates should push for a larger reallocation of voting rights atthe IMF to better refl ect the economic power of the advancedemerging markets.344 t oo bi g t o s a ve ?Table 13.3 IMF Existing vs.Proposed VotingShare by CountryIMF Voting ShareExisting (%) Proposed (%)United States 16.77 16.73Japan 6.02 6.23Britain 4.86 4.29France 4.86 4.29China 3.66 3.81Russia 2.69 2.39Belgium 2.09 1.86India 1.89 2.34Brazil 1.38 1.72Source: IMF.The G20 has also asked the newly renamed Financial StabilityBoard (formerly the Financial Stability Forum)72 to collaborate withthe IMF in order to achieve the objectives of harmonizing financialpolicies and monitoring systemic risk.But the actual results of this col-laboration remain to be seen, since neither the IMF nor the Board hasenforcement powers in either area.For instance, when the IMF in 2002fl oated a thoughtful proposal for restructuring the debts of troubledsovereign nations, 73 it provoked considerable debate but little action.In2008, the IMF was summarily rebuffed when it tried to bring aboutfinancial reform in industrialized countries:This past spring the IMF worked up a plan for the U.S.torecapitalize its banks and presented it to the Treasury, where itwas ignored.The British and French are no different, saidSimon Johnson, former IMF Chief Economist [ Pobierz całość w formacie PDF ]