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Promoting change in international financial markets

Saturday 8 November 2008, 3:08AM

By Michael Cullen

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Finance Minister Michael Cullen says a Labour-led government will take an active role in promoting change in international financial markets.

"The current international financial crisis has a number of causes, not all of which can be dealt with by improved regulation," Dr Cullen said.

"Crucial changes can be made which should help make any future financial market disturbance be less catastrophically destabilising than this one has been.

"The first need is far greater disclosure requirements on financial institutions. Much of the current crisis has its roots in the complex interwoven web of ever more unreal debt instruments of which regulatory authorities, rating agencies and others were not fully aware.

"As a result, instruments which were in reality no better than junk bonds had high ratings, yet collapsed under the pressure of the first chilly economic wind.

"Full and complete disclosure, and much closer monitoring, will be essential.

"Secondly, prudential regulators will need to have the power to prevent issuances which are patently unrelated to any adequate asset backing.

"The third element will need to be much better coordination between regulatory authorities, both within national jurisdictions and across them.

"The Northern Rock failure in Britain showed the inadequacies of ill coordinated regulation within one country. But as international finance is precisely that, international, there is a real need for the regulatory authorities at a national level to form a stronger international network.

"Finally, as the current financial crisis starts to abate, though the real economic consequences will go on for some time, it is important that there is international coordination of the current array of emergency measures which have been taken and how to exit from them.

"In future, we need to avoid the race to the bottom in terms of emergency measures such as deposit grantee schemes which has characterised this crisis.

"Again, we need a more coordinated consistent approach which reduces the moral hazard and other risks which are now so obvious," Dr Cullen said.