Saturday, January 17, 2009

The Group of Thirty's Report

The Group of Thirty’s “Financial Reform: A Framework for Financial Stability” report led by Paul Volcker was published on January 15. The report makes many strict recommendations to avoid that a financial crisis like the current one happens again. The magazine The Economist summarizes the findings of the report, here's the segment on the role of central banks:

Central banks should have a stronger role in policing such things ["shadow" banking, hedge funds, money-market funds, etc.], the authors argue, and need to be especially vigilant in good times, when credit is expanding quickly. They should also be more involved in supervising bank safety and soundness—although, to safeguard central-bank integrity, the role of chief firefighter is best played by others once trouble ignites. Central bankers “need to be more concerned about financial stability, but less involved in crises,” says Tommaso Padoa-Schioppa, one of the G30.

This reminds me that I once served as the Central Bank of Brazil liaison for Mr. Padoa-Schioppa in Rio during his visit to the Central Bank. It was a great opportunity to learn about the transition to the euro and the resulting changes in European banking.

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