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G-20 core agenda is to rejig economic system: Canada

business Updated: Jun 11, 2010 22:29 IST

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Outlining the core agenda of the G-20 meeting here later this month, Canada said the grouping will work to put the global financial system on a more solid footing to avoid repeat of the economic meltdown.

Bank of Canada Governor Mark Carney told the International Organisation of Securities Commissions meeting in Montreal reducing systemic risk and creating a more resilient global financial system tops the G-20 core agenda.

"The global financial crisis exposed the fallacy of composition that strong individual financial institutions collectively ensure the safety and soundness of the system as a whole. Even the most vigilant, micro-prudential regulatory regime can be overwhelmed by systemic risks," the head of the Canadian central bank said.

G-20's broad strategies to check systemic risk, he said, include increasing the 'resiliency of financial institutions, enhancing the robustness of financial markets, and reducing the interconnectedness between institutions and between institutions and markets.'

"These changes are radical, not incremental," the top Canadian banker said.

Creating more resilient institutions requires more and better capital, improved balance sheet liquidity, and enhanced risk management, he said.

"The final capital proposals will make the global system look more like Canada's. For the world as a whole, however, the changes will be substantial," Carney said.

He stressed the importance of open financial markets and policies and infrastructure in private generation of liquidity in normal times.

To reduce interconnectedness among institutions, he said, regulators should institute intervention regimes, and banks should develop plans to 'unwind themselves in an orderly fashion if they were to fail.'

Referring to the thrust of G-20 finance ministers and central bank governors at their Busan meetings on the core reform agenda of capital, resolution, and market infrastructure, he said, "Later this month in Toronto, G-20 leaders can be expected to harden that resolve. The time for debate and discussion is drawing to a close. Policy-makers now need to decide and to implement."