Posted by: John Gilmore | September 16, 2006

While the World Is Listening, Brown Touts Global Oversight

As the financial crisis continues to get worse – we are going to see more and more world leaders telling us that the world’s financial system needs a ‘global’ solution. Last week we heard the Prime Minister of Italy mention a ‘global’ solution – this week it’s the Prime Minister of England. Very soon – everyone will be singing the same song.

jg – Oct 15, 2008
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OCTOBER 15, 2008

While the World Is Listening, Brown Touts Global Oversight

By ALISTAIR MACDONALD
Wall St. Journal

LONDON — As the British bank-bailout plan becomes a model for Europe and the U.S., U.K. Prime Minister Gordon Brown is using his new platform as financial statesman to push what he sees as the next step: a global system of financial supervision.

Risk from financial markets has become global but the way to supervise financial institutions and their products hasn’t, and needs to be, Mr. Brown says. “You can’t deal with the problems of global financial markets within national systems of regulation,” he said at a news briefing.
Among other measures, Mr. Brown wants to empower international bodies including the International Monetary Fund to monitor global markets and act as early-warning systems.

Mr. Brown first proposed the idea after the Asian financial crisis in 1998, when he was Treasury chief under Prime Minister Tony Blair, and returned to it after the start of the credit crisis last year.

Mr. Brown said Tuesday that progress has been slow.

Though he may now have the attention of other leaders, getting them to act is more difficult. Moreover, warnings from central banks ahead of the credit crunch that there was too much leverage in the system were ignored. And the IMF’s current global financial stability reports get little traction.

But in the U.K., Mr. Brown’s handling of the credit crisis is lifting his popularity from its historic lows. He has a lot of ground to cover: his Labour Party trailed the rival Conservative Party by a wide margin in opinion polls before this week.

The U.K. leader’s bailout approach — injecting capital to bolster bank balance sheets as well as guaranteeing loans to unfreeze lending markets — got its strongest endorsement Tuesday when the U.S. took similar steps.

Mr. Brown and his team looked for other options to help the country’s banks after concluding that the massive amounts of liquidity that central banks had been pumping into the system weren’t addressing the central problem that banks didn’t trust each other so they weren’t lending, Mr. Brown said.

“We defined the problem as the strengthening of our banks with more capital so they could deal with any bad assets,” coupled with a need to guarantee some of their lending, he said. Taking stakes in banks also meant the government could dictate tough terms because taxpayers are footing the bill, he has said.

“I am very pleased that a large number of countries across the world, from Australia and New Zealand, to Sweden, to the euro area have moved towards the proposals that seem to me to be now the common ground for the way forward,” he said.

While Mr. Brown calls for greater global supervision, the U.K.’s markets regulator, the Financial Services Authority, was criticized for failing to spot and react to the risks associated with some of the country’s banks. Now, Mr. Brown’s increased credibility and the fresh urgency of the global crisis may move it along.

“We need an effective global early-warning system for the world economy to alert us to the risks ahead. We need globally accepted and supervised standards of regulation applied equally in all countries. We need stronger arrangements for cross-border supervision of global firms,” Mr. Brown said.

He talked with President George W. Bush on Tuesday about the crisis. Mr. Brown said he will push global regulation at the European Council meeting Wednesday, and he said he has talked to Chinese, Australian and other leaders this week about the idea.

An IMF spokesman didn’t return calls seeking comment.

Write to Alistair MacDonald at alistair.macdonald@wsj.com

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