Governance and Institutional Evolution Post-Crisis

The G-20 summit in Washington in 2008 initiated a significant effort to mod-ify and strengthen mechanisms and institutions involved in international monetary and financial policy. One component of this effort was to bolster the financial capacity of the IMF and the multilateral development banks.

Countries quickly responded by increasing the resources of the IMF and IMF

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borrowing facilities such as the New Arrangements to Borrow, and initiated a now-concluded and unprecedented round of capital increases at all of the multilateral development banks. Beyond enhancing the availability of finan-cial resources to backstop the finanfinan-cial system, there were three key devel-opments: to enhance emerging and developing countries’ voices and repre-sentation, the evolution of the FSB as a key institution for policy coordina-tion, and the role of the G-20.

In the Washington summit in 2008, the G-20 committed to advancing the reform of the Bretton Woods institutions to more adequately reflect the changing world economy, and to give emerging and developing countries greater voice and representation. By the Seoul summit in 2010, the G-20 had resolved to go further by pursuing additional reforms in the IMF, including further shifts in quota shares to dynamically emerging and developing coun-tries and to under-represented councoun-tries of over six per cent, It also agreed on a reduction by two in advanced European chairs at the IMF Executive Board to facilitate greater emerging market and developing country representation, and a move to an all-elected IMF board.

 The Washington summit also emphasised the need for the FSG to ex-pand its membership and for standard setters to review their member-ship as well. By the Pittsburgh summit in September 2009, the FSB was established as a successor to the FSF, with representation of all G-20 countries, FSF members, Spain, and the European Commission.

 The Toronto summit reaffirmed the FSB’s principal role in the elabo-ration of international supervisory and regulatory policies and stand-ards, and encouraged the FSB to identify ways to strengthen its capaci-ty. By the Los Cabos summit in 2012, the G-20 had endorsed a revised FSB Charter for placing the FSB on an enduring organisational foot-ing, with legal personality, strengthened governance, greater financial autonomy, and enhanced capacity to coordinate the development and implementation of regulatory policy, while maintaining strong links with the Bank of International Settlements (BIS).

 Finally, the G-20 was “designated to be the premier forum” for inter-national economic and financial cooperation.

An initial Charter endorsed by the G-20 in 2009 established the FSB with clearly delineated operational components, a consensus decision-making process, and a permanent secretariat. The Charter itself was a step forward in imbuing the FSB with a more significant role and with a specific mandate and tasks. However, it was not a binding legal document and did not

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create a legal entity – there was no decision to establish either a national-level corporate form or an institution with international legal personality. As a result, the FSB did not have the capacity to enter into agreements or hire and fire staff, and had no privileges or immunities.

A revised Charter, endorsed by the G-20 in Los Cabos, went a step fur-ther in formalising the operational arrangements of the FSB. There are three salient features in the revised Charter. First, it continues to be a non-binding document and the FSB continues not to be a legal entity at this stage. The FSB report to the G-20, however, recommends creating the FSB as a Swiss association to provide it with legal personality, and further recommends that privileges and immunities should be conveyed to the secretariat (but not members) through an existing headquarters agreement between the BIS and the Swiss government. It will be of interest to see how the legal character of the FSB changes its operational modalities over time, including through the direct recruitment of personnel. While the Charter continues to reflect a con-sensus decision-making process, the FSB report notes agreement within the FSB to formulate rules of procedure to improve internal governance and to standardise internal processes. It will likewise be interesting to see if the FSB retains its flexible and informal operational arrangements in the context of a formal set of rules and expanded membership. Finally, the Charter continues the expanded FSB composition, set out in its 2009 iteration: national level regulatory and supervisory authorities, central banks, and finance ministries;

international financial institutions; and international standard setting, regula-tory, supervisory, and central bank bodies. Participation in decision-making by international groupings in their own right – including the IMF and the regulatory standard setters – is necessary to ensure coordination and full par-ticipation by entities with a significant stake in FSB deliberations, but is unique in that supranational bodies are viewed as representing their own in-terests in accordance with their own institutional arrangements distinct from those of national-level governments. Finally, the adoption of the G-20 as the premier forum for international monetary and financial policy coordination is also of note. As it recognised in Los Cabos, G-20 decisions have far reaching impact, and the informal and flexible character of the G-20 enables it effec-tively to facilitate economic and financial cooperation. Since 2008, the G-20 has considered a wide range of international economic and financial policies, including core elements to address the financial crisis – reform of the interna-tional financial architecture, macroeconomic stability, and financial regulato-ry reform – but it has also addressed a range of other important issues such as

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food security and commodity price volatility, fossil fuel subsidies, climate change, and the fight against corruption. As it broadens its scope, as it recog-nised in Los Cabos, the G-20 will have to address concerns about transparen-cy and effectiveness, questions about formalising its processes and develop-ment of institutional capacity, and its role vis-à-vis the private sector and ex-isting international institutions that have to date provided significant input to the work of the G-20.