The Government set out part of the agenda for April's global economic summit of the G20 nations yesterday, stressing the need for "tougher global financial regulation".
In a letter to fellow G20 finance ministers, the Chancellor, Alistair Darling said: "The ability of the financial system to perform its critical role in the economy – allocating capital, managing risk and facilitating transactions – has been badly undermined... Our first objective should be therefore to return trust and confidence to financial markets."
However, Mr Darling said much less about the more pressing questions of global coordination of fiscal and monetary policy – issues that have provoked tensions both between nations, most notably in the recent spat between the German and British governments, and within national authorities, as witnessed in the recent Westminster speculation about the Bank of England's supposed opposition to Gordon Brown's plans to "print money".
Mr Darling will find more scope for agreement on reforming the international regulatory system after the banking crises that have engulfed the world's banks. Even so, there may be some argument between the European authorities, who tend to favour tighter regulation, and the US and UK ones, traditionally more inclined to a lighter touch. Much depends on the attitude of the incoming US Treasury Secretary, Timothy Geithner. During his time running the New York Federal Reserve, Mr Geithner was not noted for his enthusiasm for "early warning systems" of the kind repeatedly called for by Mr Brown.
Mr Darling's remarks in his letter that "we must recognise that we neither could nor should operate in a zero failure regime. This is sensible recognition that regulation will never prevent all failures" are in tune with Mr Geithner's philosophy.
Mr Darling also shows himself conscious that recent market failures may undermine confidence in the market system more widely: "The financial system delivers capital – the life-blood of economic growth – to the real economy and no other better system has been developed than financial markets for allocating capital or managing risk."
The 2 April summit at Downing Street will be a follow-up to November's financial crisis summit in Washington, this time with the fresh leadership of Barack Obama. The G20 includes emerging economies such as China, India and Brazil as well as the major Western nations.