THE PASSAGE of financial reform legislation in the US Congress will give the US delegation more credibility when they try to sell similar policies to their G20 partners this weekend.
But experts said it was unlikely to make much difference to the international debate.
US president Barack Obama yesterday welcomed the legislation and said it should give added impetus to the US drive to co-ordinate controls on banks across the world’s leading economies.
“This weekend in Toronto, I hope we can build on this progress by co-ordinating our efforts to promote economic growth, pursue financial reform and to strengthen the global economy,” Mr Obama said, shortly before departing for Canada.
“We need to act in concert for a simple reason: this crisis proved and events continue to affirm that our national economies are inextricably linked.”
But analysts of financial reform said government positions were too well entrenched to be affected by the US setting an example.
“It is useful to the US and will affect the tone of the meeting, but I don’t think it will make a material difference,” said Douglas Elliott at the Brookings Institution. “Only at some technical levels such as derivatives regulation are people really trying to co-ordinate globally, and that will not be discussed at G20 heads of government level.”
The US has been trying to widen the economic debate beyond fiscal consolidation, where its rhetoric about the importance of using government spending to keep growth going is beginning to look increasingly isolated in the G20.
But its campaign for an internationally co-ordinated levy on banks’ balance sheets, although announced last week in Britain, has been categorically rejected by Canada, Japan and other countries that did not suffer widespread bank failure in the crisis.
The US has yet to impose its own version of such a levy, which did not appear in the legislation passed yesterday.
And one of the US’s highest priorities, the so-called Basel III accords, which will tighten banks’ capital requirements, has been pushed further into the future. European governments have demanded more time to let their banks come into compliance.
This week Ed Clark, chief executive of Toronto-Dominion Bank, Canada’s second-largest bank, expressed frustration widely held in Canada about the financial regulation debate.
“What blew up was a relatively small number of institutions in Europe and the US that were clearly undercapitalised and clearly didn’t have enough liquidity,” he said.
“So why don’t you get them to have more capital and more liquidity, and stop trying to change every rule in the book?”
He said he was disappointed by reports that the new Basel III rules would not even be agreed, let alone implemented, by the end of this year. – (Copyright 2010 The Financial Times Limited)
