Not just tough banking rules, but tough referees, too

A nearly final version of the G20 communiqué includes a commitment to combine a new rule book for banks, which won’t be finalized until late this year, with tougher supervision to make sure those rules are actually followed.

The bland-sounding pledge—”We agree that new, stronger rules must be complemented with more effective oversight and supervision”—actually reflects a key Canadian push based on experience in this country about what actually works.

The G20 agrees that reforms should be adopted to “strengthen oversight and supervision, specifically relating to the mandate, capacity and resourcing of supervisors and specific powers which should be adopted to proactively indentify and address risks, including early intervention.”

That means banking supervisors should be given the authority to step in and force banks to change they risky ways even before they clearly break rules. This was the approach pioneered in Canada in the 1990s by John Palmer, the former Superintendent of Financial Institutions, and promoted these days by his successor, Julie Dickson.

“The rules are important,” Dickson has said, “but ultimately it is the referees that control the flow of the game.” (Apt phrasing for a G20 during which the journalists, at least, have followed the summit with one eye on the FIFA World Cup.)

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