Brown calls for a global regulator

World crisis: Chancellor urges supervisory crackdown as growth forecasts are cut

THE CHANCELLOR of the Exchequer yesterday called for the world's international institutions to join forces and establish a new global regulator for financial markets. Speaking at the Ottawa summit of Commonwealth finance ministers, Gordon Brown called for the creation of a permanent standing committee for global financial regulation.

The committee would bring together the expertise of the International Monetary Fund (IMF), the World Bank and the Basle committee for banking supervision as well as "other international regulatory groupings". It would put in place new codes of fiscal and monetary conduct, improve information flows to the private sector and find better ways of identifying systemic risk to the world's financial system, the Chancellor said.

Government sources said the proposals were one of the "main messages" the Chancellor would push in the annual IMF/World Bank meetings and at the weekend's summit of the G7 group of the world's largest industrialised nations.

In his speech yesterday, Mr Brown also argued for improved international codes on accounting standards and corporate governance, tighter control of hedge funds, and the need for greater attention to the human costs of the global financial crisis, all of which will be on his agenda at the IMF/World Bank meetings. The Chancellor reiterated that the G7 countries remained "ready to support all emerging market countries which are prepared to embark on strong, sound policies". He welcomed the decision on Tuesday of the US Federal Reserve to trim US interest rates by 0.25 points.

He said: "The vigilant action of the US Federal Reserve is designed to sustain domestic demand growth." Mr Brown stressed that, in his, view, the answer to the global crisis, was "not less globalisation, but more", a view he expressed earlier this month in a speech to Japanese bankers in Tokyo.

He argued that "a permanent retreat" into capital controls, such as those recently imposed by Malaysia, was not the right solution. Government sources said the Chancellor would be trying to drive home this message at the IMF/World Bank meetings.

Mr Brown told Commonwealth finance ministers in Ottawa: "Trying to turn the clock back by re-erecting national barriers is neither realistic nor sensible." The Chancellor argued that the existing international financial architecture was not sufficient to regulate and monitor world markets effectively.

"Recent months have exposed problems of transparency, poor risk assessment and inadequate supervision in developed countries' financial markets too. Indeed in the past week we have witnessed the vulnerability and the riskiness of some highly leveraged, speculative hedge funds," he said.

The new committee for global regulation would help address inadequacies in the understanding of relationships between financial markets and countries, inadequacies in the quality of risk assessment and gaps in the international regulatory system, Mr Brown said.

The committee could specifically address the risks posed to the international financial system by organisations such as Long-Term Capital Management, the hedge fund that last week was the subject of a $3.5bn international bail-out.

"Recent events have shown that it is particularly important that we have greater transparency of hedge funds," the Chancellor said.

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