The G20 must not let the post-crisis regulatory storm jeopardise global growth

Giles Williams
Brisbane: Home of the G20 this week

FOR ITS decisive and co-ordinated action to deal with the financial crisis, the G20 won a lot of credibility. But as it prepares for its latest summit in Brisbane this week, we now need this forum for governments and central banks from the 20 major economies to act decisively again, and adjust the direction of reform to harness financial services to support growth.

As the G20 shifts its attention from fixing the problems of the last crisis to jobs and growth, Brisbane is crucial for UK financial services. It is likely to be the last G20 where the fortune of the financial sector is still the first order of business. So it is an opportune moment to reflect on two fundamental questions. First, how best to maximise the contribution of the financial sector to the jobs and growth agenda? Second, is there a need to pause additional major regulatory reforms to prevent a lack of lending?

My fear is that, in the storm of regulatory activity that has been blowing since 2008, the economic benefits that financial services can provide to the wider economy have been largely ignored. That’s why, today, we have released a report outlining the critical role the sector can play in helping the G20 meet its objectives. We cannot increase jobs and growth without lending, investment, capital markets, insurance, fund management, payment and settlement systems, and risk management to name just a few. The industry has a big role to play.

The G20 needs to focus on how this financial services contribution can be encouraged and facilitated within the necessary parameters of systemic stability. As such, I would encourage the G20 and regulators to be brave and bold. Central to our recommendations is the need for financial services to support long-term infrastructure investment and ensure that a proper flow of credit is available.

Insurers and other long-term investors, for example, could provide more infrastructure, SME and other financing if Solvency II capital charges were recalibrated. Similarly, encouraging high quality securitisation could help with SME lending, funding the powerhouse of the EU’s economy.

European Commission president Jean-Claude Juncker’s initiative to broaden capital markets needs to be turbocharged, thereby rebalancing the dependence away from bank lending, putting Europe much more in line with the US market.

We also need to adjust the capital and liquidity requirements on banks undertaking long-term financing and trade finance – to ensure that the banking system can support the massive infrastructure projects and long-term investment needed for growth.

Banks need to play their part too, notably by intensifying their efforts to introduce culture and behavioural change, allowing regulators to more comfortably step back. We need to break out of the ultimately unproductive environment in which regulators believe they need to tackle everything because parts of the sector cannot be trusted to play their role in improving standards.

We cannot end up letting the cumulative impact of regulation constrict lending and jeopardise global growth. The G20 can send a powerful message this week that its focus on growth recognises the vital role the financial services sector must play.

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