The forum discusses strategically important reforms of the international financial system.
While the financial authorities of the major developed economies are still working hard to fight fires in their financial systems, much effort has also been devoted to identifying the causes of this global financial crisis and ways to prevent it happening again. The international body that has been most active and productive in this work is the Financial Stability Forum (FSF). The FSF was created by the Group of Seven (G7) in early 1999 after the Asian financial crisis. The HKMA, as the monetary authority of an international financial centre of global significance, was invited to join the FSF as a member in that year, along with authorities from several other jurisdictions. In addition to the financial authorities of the G7, all the principal standard-setting bodies and international financial institutions are members of the FSF.
Soon after the outbreak of the international financial turmoil triggered by the sub-prime crisis in the United States in the summer of 2007, the FSF was asked by the G7 Finance Ministers and central bank Governors in October of that year to analyse the causes of and weaknesses leading to the turmoil and make recommendations to make the markets and institutions more resilient. The FSF submitted a report to the G7 Ministers and central bank Governors in April 2008, after intensive effort, proposing work programmes in the following five areas:
- strengthening prudential oversight of capital, liquidity and risk management
- enhancing transparency and valuation
- changing the role and uses of credit ratings
- strengthening the authorities' responsiveness to risks
- establishing robust arrangements for dealing with stress in the financial system.
The G7 Ministers and Governors have endorsed the programmes and implementation has already started. Meanwhile, the sharp worsening of the global financial crisis, following the collapse of Lehman Brothers in September this year, highlighted the urgency and the importance of the work of the FSF. Indeed, as the crisis spread rapidly from the US and Europe to the rest of the world, threatening to send the world economy into recession, the leaders of the Group of Twenty (G20) met in Washington on 15 November 2008 to lay down common principles for reforming financial markets including expanding the membership of the FSF to include emerging economies. Many of the immediate and medium-term actions in the action plan laid down by the G20 leaders cover the same ground as the measures being actively pursued by the FSF.
Readers interested in the reform of the international financial system generally, and the implications for the financial system of Hong Kong specifically, should monitor closely the work of the FSF in the coming months, particularly on the immediate actions requested by the G20 leaders to be taken by 31 March 2009. There is obviously room for improvement in the regulatory structure of any financial system, including that of Hong Kong, but it would be wise for any reform to take fully into account the rapid developments, both in the markets and on the regulatory front, that are likely to take shape in international finance in the next year or so. We in the HKMA are highly alert to these developments. Indeed, as a member of the FSF we are involved in shaping them.
Readers may also have noticed that the FSF Plenary and Asian Regional Meetings were held at the offices of the HKMA earlier this week. Mr Mario Draghi, Chairman of the FSF and Governor of the Bank of Italy, also delivered a speech entitled "Combating the Global Financial Crisis: the Role of International Co-operation" at the Distinguished Lecture organised by the HKMA. Discussions in the FSF meetings are of strategic importance for the reform of the international financial system and I very much look forward to them turning into action plans in the near future.
Joseph Yam
18 December 2008
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