G20 Leader Summit 2014

in Financial Services, 07.11.2014

The 2014 G20 summit will be the ninth meeting of the G20 heads of government. It will take place in Brisbane on the 15th and 16th of November and will be an opportune moment for policy-makers to reflect upon the work that has been done so far.

The contribution of the financial sector to jobs and growth

The G20 announced that it wants to shift its attention from fixing the problems of the last financial crisis to strengthening growth and creating jobs. Switzerland as the largest single offshore center globally will be heavily affected by the decisions that will be made during the upcoming summit.

G20 priorities 2014

Seven years since the financial crisis began and five years since the Financial Stability Board was established the core areas on which the G20 have focused have been:

  • Building more resilient financial institutions;
  • Ending the “too-big-to-fail” problem
  • Addressing shadow banking risks
  • Making derivatives markets safer

However, the G20 priorities have recently been shifted to strengthening growth and creating jobs in order to return to a job-rich, strong, sustainable and balanced growth path.

Key questions for regulatory reform

The G20 has identified investment in infrastructure, reducing trade barriers, competition and labor market participation as the key growth strategies. The question is how the financial sector can maximize its contribution to jobs and growth. Therefore, the focus of the policy-makers needs to be shifted on regulatory reform to consider this contribution to the G20 priorities. Possible considerations include:

  • Adjusting the capital and liquidity requirement on banks undertaking long term financing and trade finance
  • Treating the issuers and holders of high quality securitization more like the issuers and holders of covered bonds
  • Developing capital markets, especially in countries and regions where non-bank intermediation plays a small role

Another key question to be raised is whether the current regulatory reform agenda has gone too far. There is a point where the costs of moving to a saver, sounder and more resistant financial system outweigh the benefits of reducing the probability of another financial crisis. A completely safe financial sector can never be reached and would be of little economic and social value. Regulators should:

  • Focusing more on the cumulative impact of regulation on the financial sector and on the wider jobs and growth agenda
  • Reassess the cost benefit analysis of some regulatory reforms
  • Prioritizing the on-going initiatives and providing greater certainty on the substance and timing
  • Reducing inconsistencies in the implementation of international regulatory standards

Regulatory reform agenda in Switzerland

Since Switzerland is the largest single offshore center globally and one of the top financial centers in the world the regulatory reform agenda in Switzerland is closely linked to the decisions made by the G20 summit. In the post-financial crisis work programs Switzerland has announced or signaled tougher approaches in certain areas making it even harder for the financial sector to contribute to jobs and growth. There is a chance, however, that the G20 will press the pause button on additional major reform initiatives. And yet, Swiss firms have to review their target operating model (e.g. reassess which customers and geographies will be served, which products will be offered to which clients etc.) in order to reduce costs while designing operating structures that deliver competitive advantage. There is no doubt that the implementation of the regulatory reform agenda will continue for many years to come.

 

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