World
leaders meeting in Washington, D.C., agree to a far-reaching action
plan that will reshape international financial institutions and reform
worldwide regulatory and accounting rules.
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.
