WORLD GLOBALIZATION OF THE BANKING & REGULATORY STRUCTURE
PART 1 0f 2
By Joan Veon
June 29, 2009
BASEL, SWITZERLAND - The power base of the world has shifted…it is no longer in London, New York City, Washington D. C., or Tokyo. Neither is it in Beijing or Moscow. It is Basel, Switzerland. In 1930, the Bank for International Settlements-BIS was set up as a result of the Young Plan which was named after the man who presided over the Allied Reparation Committee, Owen D Young.
Basel was chosen as its location because everyone could get on a train from anywhere in Europe to attend its meetings. When you walk out of the main train station, the BIS is within easy walking distance of one block. A modern 18 story high building belies the power it extends globally. There is nothing about the building that calls anyone’s attention to it other than the plaque near the glass front doors that basically says it is private property. The world’s power brokers walk to the BIS without fanfare and are set apart from the citizenry by their business suit and ID pass.
Yet within its walls the world’s monetary system is being designing and directed by many illuminated and brilliant people from inside and from without, those who visit regularly from all over the world include: central bank ministers, treasury secretaries, regulators, insurance supervisors, deposit insurers and accountants. Truly the BIS is all powerful. Dr. Carroll Quigley in his book, Tragedy and Hope, wrote that,
The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalistic fashion by the central banks of the world acting in concert, by secret agreement, arrived at in frequent meetings and conferences. The apex was to be the Bank for International Settlements in Basel, Switzerland (pp. 324-25).
If this power was not evident before, it is in the process of becoming greater and more immense. While the BIS has always been the focal point of central bank activity globally, it now is finalizing the structure Dr. Quigley wrote about. Bi-monthly, the Group of Ten central bankers, along with those from majoring developing nations come together to discuss global monetary policy, among other things. Over the years it has expanded to the point that every aspect of banking, finance, insurance, deposit insurance, and regulation now constitute its core workings.
In the mid-1990s the word “globalization” came into our vocabularies as we were faced with naming the process whereby the barriers between the countries of the world started to fall. Beginning with the establishment of the International Monetary Fund and World Bank in 1944, the financial barriers between countries fell; with the establishment of the United Nations in 1945, the political barriers fell; with the establishment of the World Trade Organization in 1994, the trade barriers fell; with the establishment of the International Criminal Court in 1998, the legal barriers fell; and with the September 11, 2001 attack on the World Trade Center, the military and intelligence barriers fell.
Similarly, during the 1990s, the Bank for International Settlements started to set up its own level of globalization. In1998, the International Association of Insurance Supervisors was set up and is comprised of insurance supervisors from all over the world. In 1999, the Financial Stability Forum was set up which was comprised of the Group of Seven treasury secretaries, central bankers, and regulatory agencies. Recently this organization was expanded to include the Group of Twenty. Then in 2002 the International Association of Deposit Insurers was set up. This organization is comprised of the “FDICs” of the world. Another organization which was set up in 1973 and then reconfigured in 1984 is the International Organization of Security Commissions-IOSCO which is basically a global “security and exchange” commission which has facilitated a global stock exchange.
What the 2008 Credit Crisis has provided is an opportunity to further enhance and empower these organizations which will and are in the process of transferring respective responsibilities from the national level to the global level, thus completing the process of banking, insurance, auditing, accounting, and regulatory globalization. It should be mentioned that in order for the United States to play its role in this process, the Obama Administration will have to set up a single national regulator over our seven different regulators that currently work independently. This is so important a step that the Financial Times recently ran an editorial on June 20 that warned America,
The need for thorough regulatory reform is still pressing. One concern stands out: the risk of the whole financial system breaking down, as it did last autumn. Those who want to give central banks the power and responsibility to monitor systemic risks are right. They include the US Treasury, whose proposals this week seek to turn the Federal Reserve into a systemic super-regulator. These proposals are contested. They should not be; the alternatives are worse. Reforms to rein in systemic risk must not now fall prey to politics. They must be enacted before the memory of last autumn fades.
Let us examine what the first paragraph of the Bank for International Settlements 79th Annual Report stated with regard to the credit crisis:
How could this happen? No one thought that the financial system could collapse. Sufficient safeguards were in place. There was a safety net: central banks that would lend when needed, deposit insurance and investor protections that freed individuals from worrying about the security of their wealth, regulators and supervisors to watch over individual institutions and keep managers and owners from taking on too much risk. Since August 2007, the financial system has experienced a sequence of critical failures.
While it provides their assessment of what went wrong, the report summarizes the problem and the solution this way:
In summary, financial regulators, fiscal authorities, and central bankers face enormous risks. Building a perfect, fail-safe financial system—one capable of maintaining its normal state of operations in the event of a failure—is impossible. Standing in the way are both innovation and the limits of human understanding, especially regarding the complexity of the decentralized financial world. We have no choice but to take up the challenge of first repairing and then reforming the international financial system.
Their recommendations include the BIS standard-setting committees (the Basel Committee on Banking Supervision, the Central Bank Governance Forum, the Committee on Payment and Settlement Systems, and the Markets Committee) and the Financial Stability Board. For our purposes we will discuss the newly centralized power of the Financial Stability Board.
it should be noted that with this kind of total economic and monetary
failure, the entire system should be scrapped and perhaps we should go
back to being individual nation-states, but you see for their purposes,
they are expanding and empowering another level of control which will
move the assets of the entire world into their domain. No physical war,
no guns, no bullets—electronic financial warfare.
The Financial Stability Board was originally the Financial Stability Forum-FSF. When it was set up in 1999, I interviewed its Secretary-General, Svein Andresen who told me that there was no guarantee that it would be able to protect the global system from problems. However, it was believed that if you brought the central bank ministers together with the treasury secretaries and the regulatory agencies from the Group of Seven countries that it would provide a framework to protect the global financial system. Obviously they failed in their mission. The alternative instead of liquidating the FSF was to expand and empower it. When I asked FSB Chairman Mario Draghi about the role and input of the international bankers like Sir Evelyn de Rothschild, he replied,
We are in contact with various --say bankers association, market association—banks, hedge funds, securities fora and lots of other bodies. We look at what they do and then we make up our own mind. So it is an interesting context but in the end, ours is a forum where you have the regulators—banking regulators, market regulators, financial ministries and international organization and institutions and standard setters. So it is our own mind in the end which we look at.
It is important to note that the internationalization or globalization of the financial system is here. It constitutes tearing down the final barrier between the countries of the world. It has been almost fully operational for at least 10 years. At this point in the game, the integration between a handful of international organizations is apparent.
The need to coordinate international accounting through the International Accounting Standards Board with the American counterpart, Financial Accounting Standards Board- FASB with the FSB and G20 is already happening. IOSCO is working with the BIS Joint Forum and FSB. In order to develop high quality international standards for auditing, assurance, ethics and education for professional accountants, the Monitoring Group was set up and a Charter was put in place in 2008 by Memorandum of Understanding. Those participating include: IOSCO, the Basel Committee of Banking Supervision, the European Commission, the International Association of Insurance Supervisors, the World Bank, the Financial Stability Board and the International Forum of Independent Audit Regulators.
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There are so many working groups which now comprise a new level of regulatory oversight operating internationally that it is almost impossible to go back to the power of the individual nation-state. The number and the oversight of these groups will make your head spin. Can we go back? Any country who would dare say no would be completely destroyed—ask the 5 Asian countries that chose to say no to the WTO Financial Services Agreement in the mid-1990s. It is now the Financial Stability Board which is now empowered with becoming the “United Nations of Financial and Regulatory Control” over countries. For part two click below.
Click here for part ----- > 2.
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Joan Veon is a businesswoman and international reporter, who has covered over 100 Global meetings around the world since 1994. Please visit her website: www.womensgroup.org. To get a copy of her WTO report, send $10.00 to The Women's International Media Group, Inc. P. O. Box 77, Middletown, MD 21769. For an information packet, please call 301-371-0541