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Basel meet: towards a new regulatory regime

Basel meet: towards a new regulatory regime
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First Published: Thu, Jun 25 2009. 10 19 PM IST
Updated: Thu, Jun 25 2009. 10 19 PM IST
London / Zurich: Central bankers from across the world will meet in Basel at the weekend to take steps towards a new regulatory regime and to discuss strategies to exit loose monetary policy once the economy’s recovery gains hold.
The world’s youngest supervisor—the Financial Stability Board, or FSB—gathers for the first time with doubts growing over whether it has the power to deliver on a welter of government pledges to correct regulatory flaws uncovered by the crisis.
Officials including the US Federal Reserve’s Ben Bernanke, Japan’s Masaaki Shirakawa and European Central Bank president Jean-Claude Trichet will then assess the economy at the Bank for International Settlements (BIS) annual general meeting.
The focus has been on fighting the symptoms of the crisis at meetings over the past two years, but attention is now shifting towards signs of hope for the economy and the question of how to unwind ultra-loose monetary policy.
“They will probably discuss: are they winning against the crisis and if they are, what is the exit?” Citigroup Inc. economist Michael Saunders said. Central bankers were unlikely, however, to commit to a fixed exit route and rather provide more details on the triggers that will eventually prompt the exit, he said.
Banks have taken drastic steps to fight the deepest recession since the Great Depression. They have cut rates to record lows and pumped in hundreds of billions of cheap money, bought bonds and intervened in currency markets.
Stock markets have rallied over the last couple of months as green shoots sprang up in recession-battered economies such as the US and Germany, and emerging countries such as China have found the way back to more solid growth.
However, central banks have kept a cautious tone, Saunders noted: “None of them wants to declare victory too soon.”
The Federal Reserve said on Wednesday that the US recession was easing. But it added that inflation would remain subdued for some time, giving no hint on an imminent exit.
FSB was created by the Group of Twenty industrialized and emerging market countries to coordinate national reforms aimed at restoring investor confidence and spotting future crises earlier.
Its forerunner, the Financial Stability Forum, was a smaller, informal G-7 gathering, while FSB was set to be more hands-on, warning governments about problems and supporting new colleges of supervisors for big cross-border banks. But no new regulatory initiatives are due from this week’s two-day meeting that ends onSaturday, FSB officials say, and there are significant doubts over whether it will be equipped to implement reforms already earmarked.
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First Published: Thu, Jun 25 2009. 10 19 PM IST