Twenty-Two Nations Prepare New Rules Governing Flow of CapitalBy Paul Blustein
The Washington Post
The United States joined 21 other countries Monday to propose a scheme of global regulation of vast international capital flows in an attempt to reduce the risk of future economic crises.
Financial markets around the world are reeling from the effects of sudden movements of capital - starting with the pullback from Asia a year ago and continuing today as investors pull money out of stock and bond markets and stampede into U.S. Treasury securities. The plan outlined Monday by officials attending the annual meeting of the International Monetary Fund and the World Bank would be the first attempt on a global basis to tame the movement of capital across borders and to increase the "transparency" of such investments.
"It's a very powerful document - the start of a rewriting of the rules for international capital flows," said Richard Medley, managing partner at Medley Global Advisors, a firm that counsels large international investment firms. "Government regulation and supervision is going to be a much bigger part of the equation for banks, hedge funds and other international investors."
The report called for requiring "hedge funds" and other big institutional investors - which currently place enormous bets on global markets in near-total secrecy - to disclose their international exposure to government authorities. It also recommended international standards to strengthen banking regulation and supervision. And in a significant move toward forcing banks and other financial institutions to pay a greater price for reckless lending, the report envisioned "extreme cases" where financially strapped countries might suspend all payments to foreigners, with the IMF's blessing, pending negotiations to work out a settlement of claims.
The report did little to quiet concern in financial markets over the lack of bold, coordinated action by top economic policy-makers at the IMF-World Bank meetings to contain the turmoil threatening the global economy.
The finance ministers gathered for the "Group of 22" - the G-7 nations plus 15 others formed to propose a "new architecture" for the world monetary system.