Posted on Tue, Oct. 14, 2008
last updated: November 24, 2010 01:49:33 PM
LONDON — British Prime Minister Gordon Brown, widely credited for inspiring financial bailout plans around the world, is reaching farther with calls for a coordinated overhaul of international financial regulation. His ideas are getting a closer look after the Bush administration's decision Monday to partially nationalize banks, a step Britain took a week ago.
The sudden prominence of the Labour Party leader — who just a month ago was wallowing in the political doldrums — is being compared in the British press with the popularity bounce Conservative leader Margaret Thatcher got from going to war with Argentina over the Falkland Islands in 1982.
However, his plan for nationalization flies directly in the face of Thatcher's drive — along with that of her late friend, President Reagan — to limit government involvement in the private sector.
Brown initially got little notice when he called for a summit of the world's richest countries to create a new financial and monetary framework. At the United Nations General Assembly in late September, he urged a conference like the 1944 meeting at Bretton Woods, N.H., that led to a U.S.-dominated international system of monetary management. Both the International Monetary Fund and the World Bank were created as a result. Some of that system collapsed in 1971 when the U.S. suspended the convertibility of dollars into gold.
Speaking in London's financial district on Monday, Brown again emphasized the need for more coordination between national regulators and a focus on international money flows and set out five key principles for regulatory reform.
They are: transparency and the adoption of internationally accepted accounting standards, a greater focus on integrity and conflicts of interest, increased responsibility and risk-management by boards, closer regulation and supervision of banks, and an updated version of the Bretton Woods agreement to fashion a new global financial framework.
"Bretton Woods is a tagline for saying you need a greater degree of international cooperation between countries so you don't get a beggar-thy-neighbor response (in which each seeks sole advantage)," said Mark Thomas, a London-based analyst with KBW, an investment bank focused on the financial sector.
Charles Goodhart, a professor of banking and finance at the London School of Economics, criticized Brown's call for a new Bretton Woods plan as "long on rhetoric and very short on substance."
Goodhart, an expert on financial regulation, blames the current global financial and accounting system for creating "a vast self-amplifying spiral" by requiring banks to hold more capital in hard times and less in good times. He argues that the opposite should be true, so banks have more leeway when they are financially strapped.
Goodhart rejected suggestions that new international regulators are needed beyond those that now exist, among them the Basel committee on banking, the Bank for International Settlements, and the Financial Stability Forum.
Instead, he says national governments, still the prime actors in financial regulation, need to better harmonize their approaches to regulation and then inject new life into existing international institutions. The BIS, for one, had been warning of a global financial crisis for some time, he noted, and "nobody listened."
But it's a different world today, and when Brown speaks, people listen. The normally dour Brown has seemed unusually energized by the current crisis and has evoked the spirit of the London blitz during World War II to rally the British public. His expertise during the crisis, gained from serving for 10 years as Chancellor of the Exchequer (equivalent of the Secretary of the Treasury) under Prime Minister Tony Blair, has rescued his reputation.
Although critics point out Brown himself may have sown the seeds of the crisis when he oversaw a system of "light touch" financial regulation that led to an explosion of growth in London's financial sector, a poll published in the London Sunday Times revealed that the opposition Conservative party's lead over Labour has been nearly cut to 10 points from 19 points last month.
Both the opposition Conservatives and Liberal Democrats have broadly backed the Brown government's $692 billion bailout plan, which injects capital, liquidity and funding into Britain's biggest banks. Even Le Figaro, a conservative paper in France that rarely applauds the British, published an editorial praising the Brown plan.
Analysts say Britain is not the first to use partial bank nationalization to stem a crisis. "Claiming international copyright on this is a little bit on the cheeky side," Thomas said. He said Sweden took similar steps to partly nationalize its banks following a crisis in the early 1990s, later successfully selling off those stakes at a profit. "Unless we have a 1930s-style Depression, this should work out well for governments," Thomas said.
(Sell is a McClatchy special correspondent.)
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