DECLARATION
SUMMIT ON FINANCIAL MARKETS AND THE WORLD ECONOMY
November 15, 2008
1. We, the Leaders of the Group of Twenty, held an initial meeting in Washington on
November 15, 2008, amid serious challenges to the world economy and financial
markets. We are determined to enhance our cooperation and work together to restore
global growth and achieve needed reforms in the world’s financial systems.
2. Over the past months our countries have taken urgent and exceptional measures to
support the global economy and stabilize financial markets. These efforts must continue.
At the same time, we must lay the foundation for reform to help to ensure that a global
crisis, such as this one, does not happen again. Our work will be guided by a shared
belief that market principles, open trade and investment regimes, and effectively
regulated financial markets foster the dynamism, innovation, and entrepreneurship that
are essential for economic growth, employment, and poverty reduction.
Root Causes of the Current Crisis
3. During a period of strong global growth, growing capital flows, and prolonged
stability earlier this decade, market participants sought higher yields without an adequate
appreciation of the risks and failed to exercise proper due diligence. At the same time,
weak underwriting standards, unsound risk management practices, increasingly complex
and opaque financial products, and consequent excessive leverage combined to create
vulnerabilities in the system. Policy-makers, regulators and supervisors, in some
advanced countries, did not adequately appreciate and address the risks building up in
financial markets, keep pace with financial innovation, or take into account the systemic
ramifications of domestic regulatory actions.
4. Major underlying factors to the current situation were, among others, inconsistent and
insufficiently coordinated macroeconomic policies, inadequate structural reforms, which
led to unsustainable global macroeconomic outcomes. These developments, together,
contributed to excesses and ultimately resulted in severe market disruption.
Actions Taken and to Be Taken
5. We have taken strong and significant actions to date to stimulate our economies,
provide liquidity, strengthen the capital of financial institutions, protect savings and
deposits, address regulatory deficiencies, unfreeze credit markets, and are working to
ensure that international financial institutions (IFIs) can provide critical support for the
global economy.
6. But more needs to be done to stabilize financial markets and support economic
growth. Economic momentum is slowing substantially in major economies and the
global outlook has weakened. Many emerging market economies, which helped sustain
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the world economy this decade, are still experiencing good growth but increasingly are
being adversely impacted by the worldwide slowdown.
7. Against this background of deteriorating economic conditions worldwide, we agreed
that a broader policy response is needed, based on closer macroeconomic cooperation, to
restore growth, avoid negative spillovers and support emerging market economies and
developing countries. As immediate steps to achieve these objectives, as well as to
address longer-term challenges, we will:
• Continue our vigorous efforts and take whatever further actions are necessary to
stabilize the financial system.
• Recognize the importance of monetary policy support, as deemed appropriate to
domestic conditions.
• Use fiscal measures to stimulate domestic demand to rapid effect, as appropriate,
while maintaining a policy framework conducive to fiscal sustainability.
• Help emerging and developing economies gain access to finance in current difficult
financial conditions, including through liquidity facilities and program support. We
stress the International Monetary Fund’s (IMF) important role in crisis response,
welcome its new short-term liquidity facility, and urge the ongoing review of its
instruments and facilities to ensure flexibility.
• Encourage the World Bank and other multilateral development banks (MDBs) to use
their full capacity in support of their development agenda, and we welcome the recent
introduction of new facilities by the World Bank in the areas of infrastructure and
trade finance.
• Ensure that the IMF, World Bank and other MDBs have sufficient resources to
continue playing their role in overcoming the crisis.
Common Principles for Reform of Financial Markets
8. In addition to the actions taken above, we will implement reforms that will strengthen
financial markets and regulatory regimes so as to avoid future crises. Regulation is first
and foremost the responsibility of national regulators who constitute the first line of
defense against market instability. However, our financial markets are global in scope,
therefore, intensified international cooperation among regulators and strengthening of
international standards, where necessary, and their consistent implementation is
necessary to protect against adverse cross-border, regional and global developments
affecting international financial stability. Regulators must ensure that their actions
support market discipline, avoid potentially adverse impacts on other countries, including
regulatory arbitrage, and support competition, dynamism and innovation in the
marketplace. Financial institutions must also bear their responsibility for the turmoil and
should do their part to overcome it including by recognizing losses, improving disclosure
and strengthening their governance and risk management practices.
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9. We commit to implementing policies consistent with the following common principles
for reform.
• Strengthening Transparency and Accountability: We will strengthen financial
market transparency, including by enhancing required disclosure on complex
financial products and ensuring complete and accurate disclosure by firms of their
financial conditions. Incentives should be aligned to avoid excessive risk-taking.
• Enhancing Sound Regulation: We pledge to strengthen our regulatory regimes,
prudential oversight, and risk management, and ensure that all financial markets,
products and participants are regulated or subject to oversight, as appropriate to their
circumstances. We will exercise strong oversight over credit rating agencies,
consistent with the agreed and strengthened international code of conduct. We will
also make regulatory regimes more effective over the economic cycle, while ensuring
that regulation is efficient, does not stifle innovation, and encourages expanded trade
in financial products and services. We commit to transparent assessments of our
national regulatory systems.
• Promoting Integrity in Financial Markets: We commit to protect the integrity of
the world’s financial markets by bolstering investor and consumer protection,
avoiding conflicts of interest, preventing illegal market manipulation, fraudulent
activities and abuse, and protecting against illicit finance risks arising from non-
cooperative jurisdictions. We will also promote information sharing, including with
respect to jurisdictions that have yet to commit to international standards with respect
to bank secrecy and transparency.
• Reinforcing International Cooperation: We call upon our national and regional
regulators to formulate their regulations and other measures in a consistent manner.
Regulators should enhance their coordination and cooperation across all segments of
financial markets, including with respect to cross-border capital flows. Regulators
and other relevant authorities as a matter of priority should strengthen cooperation on
crisis prevention, management, and resolution.
• Reforming International Financial Institutions: We are committed to advancing
the reform of the Bretton Woods Institutions so that they can more adequately reflect
changing economic weights in the world economy in order to increase their
legitimacy and effectiveness. In this respect, emerging and developing economies,
including the poorest countries, should have greater voice and representation. The
Financial Stability Forum (FSF) must expand urgently to a broader membership of
emerging economies, and other major standard setting bodies should promptly review
their membership. The IMF, in collaboration with the expanded FSF and other
bodies, should work to better identify vulnerabilities, anticipate potential stresses, and
act swiftly to play a key role in crisis response.
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Tasking of Ministers and Experts
10. We are committed to taking rapid action to implement these principles. We instruct
our Finance Ministers, as coordinated by their 2009 G-20 leadership (Brazil, UK,
Republic of Korea), to initiate processes and a timeline to do so. An initial list of specific
measures is set forth in the attached Action Plan, including high priority actions to be
completed prior to March 31, 2009.
In consultation with other economies and existing bodies, drawing upon the
recommendations of such eminent independent experts as they may appoint, we request
our Finance Ministers to formulate additional recommendations, including in the
following specific areas:
• Mitigating against pro-cyclicality in regulatory policy;
• Reviewing and aligning global accounting standards, particularly for complex
securities in times of stress;
• Strengthening the resilience and transparency of credit derivatives markets and
reducing their systemic risks, including by improving the infrastructure of over-the-
counter markets;
• Reviewing compensation practices as they relate to incentives for risk taking and
innovation;
• Reviewing the mandates, governance, and resource requirements of the IFIs; and
• Defining the scope of systemically important institutions and determining their
appropriate regulation or oversight.
11. In view of the role of the G-20 in financial systems reform, we will meet again by
April 30, 2009, to review the implementation of the principles and decisions agreed
today.
Commitment to an Open Global Economy
12. We recognize that these reforms will only be successful if grounded in a commitment
to free market principles, including the rule of law, respect for private property, open
trade and investment, competitive markets, and efficient, effectively regulated financial
systems. These principles are essential to economic growth and prosperity and have
lifted millions out of poverty, and have significantly raised the global standard of living.
Recognizing the necessity to improve financial sector regulation, we must avoid over-
regulation that would hamper economic growth and exacerbate the contraction of capital
flows, including to developing countries.
13. We underscore the critical importance of rejecting protectionism and not turning
inward in times of financial uncertainty. In this regard, within the next 12 months, we
will refrain from raising new barriers to investment or to trade in goods and services,
imposing new export restrictions, or implementing World Trade Organization (WTO)
inconsistent measures to stimulate exports. Further, we shall strive to reach agreement
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this year on modalities that leads to a successful conclusion to the WTO’s Doha
Development Agenda with an ambitious and balanced outcome. We instruct our Trade
Ministers to achieve this objective and stand ready to assist directly, as necessary. We
also agree that our countries have the largest stake in the global trading system and
therefore each must make the positive contributions necessary to achieve such an
outcome.
14. We are mindful of the impact of the current crisis on developing countries,
particularly the most vulnerable. We reaffirm the importance of the Millennium
Development Goals, the development assistance commitments we have made, and urge
both developed and emerging economies to undertake commitments consistent with their
capacities and roles in the global economy. In this regard, we reaffirm the development
principles agreed at the 2002 United Nations Conference on Financing for Development
in Monterrey, Mexico, which emphasized country ownership and mobilizing all sources
of financing for development.
15. We remain committed to addressing other critical challenges such as energy security
and climate change, food security, the rule of law, and the fight against terrorism, poverty
and disease.
16. As we move forward, we are confident that through continued partnership,
cooperation, and multilateralism, we will overcome the challenges before us and restore
stability and prosperity to the world economy.
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Action Plan to Implement Principles for Reform
This Action Plan sets forth a comprehensive work plan to implement the five agreed
principles for reform. Our finance ministers will work to ensure that the taskings set
forth in this Action Plan are fully and vigorously implemented. They are responsible for
the development and implementation of these recommendations drawing on the ongoing
work of relevant bodies, including the International Monetary Fund (IMF), an expanded
Financial Stability Forum (FSF), and standard setting bodies.
Strengthening Transparency and Accountability
Immediate Actions by March 31, 2009
• The key global accounting standards bodies should work to enhance guidance for
valuation of securities, also taking into account the valuation of complex, illiquid
products, especially during times of stress.
• Accounting standard setters should significantly advance their work to address
weaknesses in accounting and disclosure standards for off-balance sheet vehicles.
• Regulators and accounting standard setters should enhance the required disclosure of
complex financial instruments by firms to market participants.
• With a view toward promoting financial stability, the governance of the international
accounting standard setting body should be further enhanced, including by
undertaking a review of its membership, in particular in order to ensure transparency,
accountability, and an appropriate relationship between this independent body and the
relevant authorities.
• Private sector bodies that have already developed best practices for private pools of
capital and/or hedge funds should bring forward proposals for a set of unified best
practices. Finance Ministers should assess the adequacy of these proposals, drawing
upon the analysis of regulators, the expanded FSF, and other relevant bodies.
Medium-term actions
• The key global accounting standards bodies should work intensively toward the
objective of creating a single high-quality global standard.
• Regulators, supervisors, and accounting standard setters, as appropriate, should work
with each other and the private sector on an ongoing basis to ensure consistent
application and enforcement of high-quality accounting standards.
• Financial institutions should provide enhanced risk disclosures in their reporting and
disclose all losses on an ongoing basis, consistent with international best practice, as
appropriate. Regulators should work to ensure that a financial institution’ financial
statements include a complete, accurate, and timely picture of the firm’s activities
(including off-balance sheet activities) and are reported on a consistent and regular
basis.
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Enhancing Sound Regulation
Regulatory Regimes
Immediate Actions by March 31, 2009
• The IMF, expanded FSF, and other regulators and bodies should develop
recommendations to mitigate pro-cyclicality, including the review of how valuation
and leverage, bank capital, executive compensation, and provisioning practices may
exacerbate cyclical trends.
Medium-term actions
• To the extent countries or regions have not already done so, each country or region
pledges to review and report on the structure and principles of its regulatory system to
ensure it is compatible with a modern and increasingly globalized financial system.
To this end, all G-20 members commit to undertake a Financial Sector Assessment
Program (FSAP) report and support the transparent assessments of countries’ national
regulatory systems.
• The appropriate bodies should review the differentiated nature of regulation in the
banking, securities, and insurance sectors and provide a report outlining the issue and
making recommendations on needed improvements. A review of the scope of
financial regulation, with a special emphasis on institutions, instruments, and markets
that are currently unregulated, along with ensuring that all systemically-important
institutions are appropriately regulated, should also be undertaken.
• National and regional authorities should review resolution regimes and bankruptcy
laws in light of recent experience to ensure that they permit an orderly wind-down of
large complex cross-border financial institutions.
• Definitions of capital should be harmonized in order to achieve consistent measures
of capital and capital adequacy.
Prudential Oversight
Immediate Actions by March 31, 2009
• Regulators should take steps to ensure that credit rating agencies meet the highest
standards of the international organization of securities regulators and that they avoid
conflicts of interest, provide greater disclosure to investors and to issuers, and
differentiate ratings for complex products. This will help ensure that credit rating
agencies have the right incentives and appropriate oversight to enable them to
perform their important role in providing unbiased information and assessments to
markets.
• The international organization of securities regulators should review credit rating
agencies’ adoption of the standards and mechanisms for monitoring compliance.
• Authorities should ensure that financial institutions maintain adequate capital in
amounts necessary to sustain confidence. International standard setters should set out
strengthened capital requirements for banks’ structured credit and securitization
activities.
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• Supervisors and regulators, building on the imminent launch of central counterparty
services for credit default swaps (CDS) in some countries, should: speed efforts to
reduce the systemic risks of CDS and over-the-counter (OTC) derivatives
transactions; insist that market participants support exchange traded or electronic
trading platforms for CDS contracts; expand OTC derivatives market transparency;
and ensure that the infrastructure for OTC derivatives can support growing volumes.
Medium-term actions
• Credit Ratings Agencies that provide public ratings should be registered.
• Supervisors and central banks should develop robust and internationally consistent
approaches for liquidity supervision of, and central bank liquidity operations for,
cross-border banks.
Risk Management
Immediate Actions by March 31, 2009
• Regulators should develop enhanced guidance to strengthen banks’ risk management
practices, in line with international best practices, and should encourage financial
firms to reexamine their internal controls and implement strengthened policies for
sound risk management.
• Regulators should develop and implement procedures to ensure that financial firms
implement policies to better manage liquidity risk, including by creating strong
liquidity cushions.
• Supervisors should ensure that financial firms develop processes that provide for
timely and comprehensive measurement of risk concentrations and large counterparty
risk positions across products and geographies.
• Firms should reassess t
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