Here is a set of policy recommendations for the global financial system that we can get behind… from the comment section of Floyd Norris’ blog…
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For the markets to work efficiently, we need the following:
1. Build a Superstructure to oversee all Central Banks… IMF may or may not be mandated to play that role, but the recent events prove the need for one, an effective one that is,
2. Implement a uniform Banking regulation around the world and impose a set of well defined supervisory practices by the Central Banks in each country, with random and unannounced audits by the “Regulators”,
3. Break the size of the Banks down to an appropriate mass and limit their area of activity to make sure none of them will cause systemic risks upon failure,
4. Impose strict standards for asset backed lending (Banks MUST NOT be allowed to take Market Risk under any circumstances) and impose stricter rules for securitization,
5. Regulate the Credit Rating Agencies,
6. Create firewalls between those holding companies that have Banking, Insurance and Trading activities and make sure that all three business units are run as stand alone profit centers, well capitalized separately and there is no cross collaterization….
7. Force the Banks to mark to market their assets NOW, and be ready to inject public/private cash to maintain their vital ratios and liquidity… I am convinced that there is enough private capital to recapitalize the Banks, but no one trusts their Balance Sheets,
8. Tighten interbanking lending regulations and police them around the clock. There should be a mechanism that will force everyone to come on side by midnight Saturday each weekend, before the Asian Markets Open next day,
9. Regulate the Derivatives Markets, Hedge Funds or any player that sits outside the current regulated framework and tighten up the regulations on the stock exchanges with universal/global standards and practices,
10. The governments Must act decisively to clean up this mess at once as the piecemeal approach has proven to be fatal.
At the end of the day, to create a functional and stable global financial system, we need absolute transparency absolutely, uniform standards for best banking practices (fairness), strict supervisory/enforcement regimes across all their activities; and uniform definition, interpretation, treatment and pricing for each category of risk in order to regain the trust and the confidence of the investors, depositors, lenders, borrowers and all other market participants.