DECLARATION
SUMMIT ON FINANCIAL MARKETS AND THE WORLD ECONOMY
November 15, 2008
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 overregulation
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 crossborder
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 crossborder
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 capacitybuilding
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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