OTTAWA (Reuters) - All countries should submit their financial systems to an independent review by the International Monetary Fund and be held accountable for the results, Canadian Finance Minister Jim Flaherty said on Thursday.
Flaherty presented the proposal in a Financial Times column as world leaders prepare for a G20 summit of developed and developing nations in Washington on Saturday, where they aim to come up with a joint policy response to the global financial crisis.
Canada was the first country to undergo the IMF-World Bank review procedure, called the Financial Sector Assessment Program or FSAP, introduced in 1999. The plan aims to promote a sound financial sector by pinpointing weaknesses and recommending improvements. Last year it published the results from a second review.
“This independent review of domestic financial systems should be mandatory and public,” Flaherty wrote.
“We need IMF surveillance with teeth. Countries must live up to their responsibilities to support global financial stability and growth.”
The United States, the origin of the subprime mortgage market collapse in August 2007, which then poisoned credit markets around the world, initially refused to have an FSAP, IMF Managing Director Dominique Strauss-Kahn said in April. It did not agree to the program until mid-2008 and the results should be published in 2010.
Most European countries, like Canada, have already undergone the review process and adopted measures spelled out by the IMF.
Strauss-Kahn said the IMF should not be blamed for missing early warning signs of the credit crisis because of the U.S. rejection of the assessment program.
At the G20, most governments agree on the need to reform regulations governing financial markets but views diverge on what changes are needed and on who will supervise them.
Canada’s finance minister and central bank governor, Mark Carney, say the first priority should be for each country to get its own national regulations in order. Then, as a “second line of defense,” those should be put to the test by an international body.
In an interview with Reuters on Sunday, Carney called the IMF-World Bank FSAP review a “rigorous” test that everyone around the G20 table should agree to.
In addition to international surveillance, Ottawa is calling for regulation of all pools of capital that rely on leverage, higher capital requirements on all banks and a regulatory requirement to assess risks, not just for individual institutions but at a systemic level as well.
Flaherty is also pushing for all economies to improve market transparency so that destabilizing trading practices do not go unnoticed.
Reporting by Louise Egan; editing by Peter Galloway