EconoMonitor

Peterson Institute for International Economics

A New Era for Global Financial Standards

Even as headlines remain dominated by the euro area crisis, the financial world is transforming itself along multiple other dimensions. One intriguing but so far little-noticed development is the gradual shift in the role of global financial standard setters, which are becoming more assertive in looking at how their standards are adopted and implemented around the world.

Global financial standards have emerged since the 1970s as a by-product of global financial integration. While some global bodies set norms for small and arcane corners of finance, two cases stand out for the magnitude of their impact on financial firms’ operations and incentives: the successive agreements reached by the Basel Committee on Banking Supervision, or Basel Accords; and International Financial Reporting Standards (IFRS), which govern the preparation and presentation of listed companies’ financial statements and are set by the London-based International Accounting Standards Board (IASB).

Until recently, both the Basel Committee and the IASB, like other global financial standard setters, felt their role was to publish and update standards of high quality, and to a certain extent, to promote their adoption and use, but not to control how they were used. (There was some sharing of experiences among public authorities in the Basel Committee, but no corresponding public disclosures.) This is now changing. The Basel Committee is creating a whole new framework of direct oversight over how its standards are made into law in individual jurisdictions, and how they are being applied by individual financial institutions there. Crucially, the committee has announced that its findings would be made public. In October 2011, it duly released for the first time a table comparing the state of adoption of the Basel II and Basel 2.5 Accords in its member jurisdictions and the European Union.

These are no mere technical matters: The Basel III Accord on capital, leverage, and liquidity is expected to result in curbs on banks’ profitability and additional constraints on the largest banks. Its transposition into EU legislation is currently the subject of furious lobbying, and US federal agencies’ proposal for its adoption in the United States has not yet been published. Stefan Ingves, the Swedish central banker who took the chair of the Basel Committee in June 2011, emphasized the effort by commenting recently that “setting rules without ensuring their implementation is akin to building a lighthouse without ever switching the light on.”

Last month, similar announcements were made regarding accounting standards with the publication by the IFRS Foundation, which hosts the IASB, of a landmark report on its strategy for the next ten years. This text specifies that “the IFRS should seek full disclosure where adoption of IFRS is incomplete or where there is divergence from the full set of IFRS as issued by the IASB,” and that “the IASB will work with a network of securities regulators, audit regulators…and other stakeholders to identify where divergence in practice occurs across borders.” This contrasts with the IASB’s previous stance, which claimed no responsibility for its IFRS standards’ actual implementation.

This assumption of new responsibility seems to have been motivated by the fact that inconsistent practice is bound to taint the perception of the standards themselves. The financial crisis has certainly accelerated a shift that was arguably long overdue. It put the spotlight on, among other things, different risk-weighting of similar assets by American and European banks under Basel II, or divergent accounting for writing down Greek sovereign debt among banks inside the European Union.

It remains to be seen what exactly will be delivered on the basis of the recent announcements. The national supervisors who are members of the Basel Committee may not welcome external scrutiny of their practices. The IASB may struggle to enlist the cooperation of national public authorities in its monitoring effort. In both cases, the extent of disclosures to the public about potentially embarrassing findings remains largely to be determined.

Furthermore, global financial standard setters have plenty of other pressing challenges. They need to regularly update their standards. The rapid negotiation of Basel III must be counted as a notable crisis-induced success, but by no means the end of the road. They need all jurisdictions to commit in principle to adopting their standards, which is far from universally the case for IFRS: large outliers still include the United States and Japan. They also need to update their governance and management, not least to adapt to the rise of large emerging economies, and in the case of the IFRS Foundation, to find a stable and sustainable funding model, which it still lacks to a large extent.

This post originally appeared at the Peterson Institute.

12 Responses to “A New Era for Global Financial Standards”

ronaldfedkiwOctober 18th, 2013 at 10:13 am

Overseas Financial Confirming Criteria are created like a common world-wide dialect pertaining to business extramarital liasons to ensure balances usually are simple to comprehend and also related across intercontinental restrictions. These are a consequence of expanding intercontinental shareholding and also business and therefore are particularly very important to corporations that contain deals in a number of nations around the world. auto-finance articles

asimshahJune 3rd, 2016 at 9:41 am

Even an increasing number of individuals are generally embracing on-line relationship internet sites (otherwise known as web partnership websites) to uncover their excellent match. Examine our top 10 internet online dating websites for more information. http://www.datingpro.net

asimshahJune 3rd, 2016 at 9:41 am

Using this type of technology power world, nearly every single facility and also service beneath sun can be purchased at your click in the mouse. But one have to be sure through the need on its own. Babysitter and also nanny may are most often synonymous circumstances but expose look may possibly reveal that will there’s an aspect in their unique meanings along with the services they have. http://www.techtoolsforactivism.net

asimshahJune 3rd, 2016 at 9:41 am

Your Universe is definitely infinite. You can find no constraints, and virtually no limitations. Since humans, we’re issues with the Whole world. In one particular way, we’re the globe, in yet another we’re separate tasks of this Entire world. http://www.lawtechtalk.net

asimshahJune 3rd, 2016 at 9:41 am

If it was a aspiration show or maybe a science fictional show along with the main individuality was erased, I may not have imagined it for virtually any second. There’s always a means to bring these people in those sort of shows. http://www.technology2.net

asimshahJune 3rd, 2016 at 9:41 am

A new visitor operations software allows you monitor people getting straight into your making or place of work. This software package works throughout tandem with various hardware units like fingerprint reader, bar rule scanner along with printers. http://www.nyctechnology.net

asimshahJune 3rd, 2016 at 9:41 am

Full price shrinkage would be the premier profits killer to blame for the demise of all retail firms. Shrinkage 's nearly three times the standard retailer profits margin therefore it’s imperative what sort of industry uses every tool required to minimise your impact linked to shrinkage. http://www.itstechnology.net

asimshahJune 3rd, 2016 at 9:42 am

A final days in final years are an original experience within just life. We are not able to experience our personal last periods objectively, even as we cannot feel realistically, due so as to weakened reflexes. You can easliy educate ourself by seeing our dad and mom and elderly siblings, throughout his or her last periods in final years. http://www.favientertainment.net

asimshahJune 3rd, 2016 at 9:42 am

There are several of items to consider when booking an entertainer. Much like any self-sufficient business, there’s a new variation from the quality a single entertainer to an alternative. Some usually are wonderful, some usually are good as well as some are possibly less than the standard you’d be expecting. http://www.fivestarentertainment.net