The official G20 Leaders’ communiqué was released this morning assessing the policies released in April to fix the world’s economy. It was divided into the following sections:

Framework for Strong, Sustainable and Balanced Growth

The centrepiece of the summit was the “Framework”, which will be the primary vehicle for global economic harmonisation — via which issues such as US deficits and Chinese over-reliance on exports are to be addressed.

The Framework is fairly short on detail, and will rely heavily on consensus and moral suasion. G20 members will agree on shared economic coordination objectives, set out their individual policy frameworks for achieving those objectives, and participate in a process of mutual assessment.

The most concrete aspect of the Framework is that the IMF has been tasked with developing the assessment process and conducting assessments, which will then be used by finance ministers and leaders.

Financial regulation

Capital adequacy

Pittsburgh added some meat and deadlines to previous moves to improve both the quantity and quality of bank capital

  • By the end of 2010 there will be internationally agreed rules to improve bank capital, require counter-cyclical capital buffers and discourage excessive leverage. Implementation of the rules will be phased in “as financial conditions improve and economic recovery is assured”, with the aim of implementation by end-2012. All members committed to adopting the Basel II framework by 2011.
  • A leverage ratio will be introduced as a supplementary measure to the Basel II risk-based framework, subject to international harmonisation.

Members and systemically important firms will also be required to produce crisis management and intervention plans.

Executive compensation

Pittsburgh reaffirmed that the US (and Australian) position against direct regulation of executive remuneration, aiming instead at decoupling risk and bonuses. In return, the Europeans got some aggressive language about how “excessive compensation” has “encouraged excessive risk taking.” The Financial Stability Board (confirmed as a permanent and high-level overseer of financial regulation by the London summit) has carriage of the issue and has been tasked with finalising requirements by March 2010. Key measures are:

  • An end to multi-year guaranteed bonuses
  • Significant portions of bonuses to be deferred and linked to performance, in a manner “aligned with long-term value creation and the time horizon of risk”
  • Transparency of remuneration policies via disclosure requirements
  • Limiting bonuses as a percentage of revenue where necessary to maintain adequate capital
  • genuinely independent compensation committees

Enforcement will be via the imposition of higher capital requirements for firms that do not comply, with a backstop power for regulators to directly intervene to limit remuneration where firms have failed or needed a bailout.


By the end of 2012, all over-the-counter derivatives will need to be sold via a central trading desk, rather than directly between parties. There will also be requirements for originators and sponsors of securities to retain part of the risk of the underlying asset. Derivatives that do not comply will be subject to higher capital requirements. Global accounting standards are to be agreed to by June 2011.

International architecture – G20 and IMF/World Bank

G20 “designated to be the premier forum for our international economic cooperation.” The Financial Stability Board was explicitly identified as the means to “coordinate and monitor progress in strengthening financial regulation.”

In the IMF, there will be at least a 5% shift in quota share to under-represented countries by Jan 2011

In the World Bank there will be a 3% shift, in addition to the current 1.46% shift underway, by mid-2010.

The summit also declared that measures targeting Non-Compliant Jurisdictions (i.e. tax havens) was going well and would be ramped up.

Food, fuel and finance for the poor

  • Greater transparency and stability in oil markets, particularly via the regular publication of high-quality data on oil production, consumption, refining and stocks, beginning in January 2010
  • Greater oversight of commodities markets
  • Greater development bank assistance to poorest countries to address food security
  • Medium-term commitment to phase out of fossil fuel subsidies
  • ILO labour standards to be maintained — no case for reduction in labour standards to address rising unemployment


The Group agreed to “keep markets open and free and reaffirm the commitments made in Washington and London: to refrain from raising barriers or imposing new barriers to investment or to trade in goods and services, imposing new export restrictions or implementing World Trade Organisation (WTO) inconsistent measures.” Those commitments have of course been more honoured in the breach than the observance.

Members reiterated the finance ministers’ commitment to an “ambitious and balanced outcome from Doha”.