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Declaration of the Summit on Financial Markets and the World Economy
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For Immediate Release Office of the Press Secretary November 15, 2008

Declaration of the Summit on Financial Markets and the World Economy

ÿÿWhite House News

ÿÿÿÿÿ In Focus:Summit on Financial Markets and the World Economy

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

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.

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.

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
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.

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.

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.

* 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 their risk management models to guard against stress and
report to supervisors on their efforts. * The Basel Committee should study
the need for and help develop firms' new stress testing models, as
appropriate. * Financial institutions should have clear internal incentives
to promote stability, and action needs to be taken, through voluntary
effort or regulatory action, to avoid compensation schemes which reward
excessive short-term returns or risk taking. * Banks should exercise
effective risk management and due diligence over structured products and
securitization.

Medium -term actions * International standard setting bodies, working with
a broad range of economies and other appropriate bodies, should ensure that
regulatory policy makers are aware and able to respond rapidly to evolution
and innovation in financial markets and products.

* Authorities should monitor substantial changes in asset prices and their
implications for the macroeconomy and the financial system.

Promoting Integrity in Financial Markets

Immediate Actions by March 31, 2009 * Our national and regional authorities
should work together to enhance regulatory cooperation between
jurisdictions on a regional and international level. * National and
regional authorities should work to promote information sharing about
domestic and cross-border threats to market stability and ensure that
national (or regional, where applicable) legal provisions are adequate to
address these threats. * National and regional authorities should also
review business conduct rules to protect markets and investors, especially
against market manipulation and fraud and strengthen their cross-border
cooperation to protect the international financial system from illicit
actors. In case of misconduct, there should be an appropriate sanctions
regime.

Medium -term actions * National and regional authorities should implement
national and international measures that protect the global financial
system from uncooperative and non-transparent jurisdictions that pose risks
of illicit financial activity. * The Financial Action Task Force should
continue its important work against money laundering and terrorist
financing, and we support the efforts of the World Bank - UN Stolen Asset
Recovery (StAR) Initiative. * Tax authorities, drawing upon the work of
relevant bodies such as the Organization for Economic Cooperation and
Development (OECD), should continue efforts to promote tax information
exchange. Lack of transparency and a failure to exchange tax information
should be vigorously addressed.

Reinforcing International Cooperation

Immediate Actions by March 31, 2009 * Supervisors should collaborate to
establish supervisory colleges for all major cross-border financial
institutions, as part of efforts to strengthen the surveillance of
cross-border firms. Major global banks should meet regularly with their
supervisory college for comprehensive discussions of the firm's activities
and assessment of the risks it faces. * Regulators should take all steps
necessary to strengthen cross-border crisis management arrangements,
including on cooperation and communication with each other and with
appropriate authorities, and develop comprehensive contact lists and
conduct simulation exercises, as appropriate.

Medium -term actions * Authorities, drawing especially on the work of
regulators, should collect information on areas where convergence in
regulatory practices such as accounting standards, auditing, and deposit
insurance is making progress, is in need of accelerated progress, or where
there may be potential for progress. * Authorities should ensure that
temporary measures to restore stability and confidence have minimal
distortions and are unwound in a timely, well-sequenced and coordinated
manner.

Reforming International Financial Institutions

Immediate Actions by March 31, 2009 * The FSF should expand to a broader
membership of emerging economies. * The IMF, with its focus on
surveillance, and the expanded FSF, with its focus on standard setting,
should strengthen their collaboration, enhancing efforts to better
integrate regulatory and supervisory responses into the macro-prudential
policy framework and conduct early warning exercises. * The IMF, given its
universal membership and core macro-financial expertise, should, in close
coordination with the FSF and others, take a leading role in drawing
lessons from the current crisis, consistent with its mandate. * We should
review the adequacy of the resources of the IMF, the World Bank Group and
other multilateral development banks and stand ready to increase them where
necessary. The IFIs should also continue to review and adapt their lending
instruments to adequately meet their members' needs and revise their
lending role in the light of the ongoing financial crisis. * We should
explore ways to restore emerging and developing countries' access to credit
and resume private capital flows which are critical for sustainable growth
and development, including ongoing infrastructure investment. * In cases
where severe market disruptions have limited access to the necessary
financing for counter-cyclical fiscal policies, multilateral development
banks must ensure arrangements are in place to support, as needed, those
countries with a good track record and sound policies.

Medium -term actions * We underscored that the Bretton Woods Institutions
must be comprehensively reformed so that they can more adequately reflect
changing economic weights in the world economy and be more responsive to
future challenges. Emerging and developing economies should have greater
voice and representation in these institutions. * The IMF should conduct
vigorous and even-handed surveillance reviews of all countries, as well as
giving greater attention to their financial sectors and better integrating
the reviews with the joint IMF/World Bank financial sector assessment
programs. On this basis, the role of the IMF in providing macro-financial
policy advice would be strengthened. * Advanced economies, the IMF, and
other international organizations should provide capacity-building programs
for emerging market economies and developing countries on the formulation
and the implementation of new major regulations, consistent with
international standards.

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