G-20 Toronto summit declaration

In Toronto the G-20 held its first Summit in its new capacity as the premier forum for our international economic cooperation on June 26-27, 2010. The G-20’s highest priority is to safeguard and strengthen the recovery and lay the foundation for strong, sustainable and balanced growth, and strengthen our financial systems against risks.

The G-20 has agreed on the next steps we should take to ensure a full return to growth with quality jobs, to reform and strengthen financial systems, and to create strong, sustainable and balanced global growth. The G-20 is committed to taking concerted actions to sustain the recovery, create jobs and to achieve stronger, more sustainable and more balanced growth. These will be differentiated and tailored to national circumstances. The G-20 agreed on (see the full declaration + annex 1/II for the full original text including more items): 

  • The Framework for Strong, Sustainable and Balanced Growth

The G-20 agreed on following through on fiscal stimulus and communicating “growth friendly” fiscal consolidation plans in advanced countries that will be implemented going forward. Sound fiscal finances are essential to sustain recovery, provide flexibility to respond to new shocks, ensure the capacity to meet the challenges of aging populations, and avoid leaving future generations with a legacy of deficits and debt. The path of adjustment must be carefully calibrated to sustain the recovery in private demand.

There is a risk that synchronized fiscal adjustment across several major economies could adversely impact the recovery. There is also a risk that the failure to implement consolidation where necessary would undermine confidence and hamper growth. Reflecting this balance, advanced economies have committed to fiscal plans that will at least halve deficits by 2013 and stabilize or reduce government debt-to-GDP ratios by 2016. Recognizing the circumstances of Japan, the G-20 welcomes the Japanese government’s fiscal consolidation plan announced recently with their growth strategy. Those with serious fiscal challenges need to accelerate the pace of consolidation. Fiscal consolidation plans will be credible, clearly communicated, differentiated to national circumstances, and focused on measures to foster economic growth.

  • Capital and Liquidity

The G-20 agreed that the core of the financial sector reform agenda rests on improving thestrength of capital and liquidity and discouraging excessive leverage. We agreed to increase the quality, quantity, and international consistency of capital, to strengthen liquidity standards, to discourage excessive leverage and risk taking, and reduce procyclicality.

The G-20 took stock of the progress of the Basel Committee on Banking Supervision (BCBS) towards a new global regime for bank capital and liquidity and welcomes and supports its work. Substantial progress has been made on reforms that will materially raise levels of resilience of our banking systems.

1. The amount of capital will be significantly higher when the new reforms are fully implemented.

1. The quality of capital will be significantly improved to reinforce banks’ ability to absorb losses.

The G-20 supports reaching agreement, at the time of the Seoul Summit, on a new capital framework that would raise capital requirements by:

1. establishing a new requirement that each bank hold in Tier 1 capital, at a minimum, an increasing share of common equity, after deductions, measured as a percentage of risk-weighted assets, that enables them to withstand with going concern fully-lossabsorbing capital – without extraordinary government support – stresses of a magnitude associated with the recent financial crisis.

2. moving to a globally consistent and transparent set of conservative deductions generally applied at the level of common equity, or its equivalent in the case of nonjoint stock companies, over a suitable globally-consistent transition period.

Based on the agreement at the Pittsburgh Summit that Basel II will be adopted in all major centers by 2011, the G-30 agreed that all members will adopt the new standards and these will be phased in over a timeframe that is consistent with sustained recovery and limits market disruption, with the aim of implementation by end-2012, and a transition horizon informed by the macroeconomic impact assessment of the Financial Stability Board (FSB) and BCBS.

  • Financial Market Infrastructure and Scope of Regulation

The G-20 pledged to work in a coordinated manner to accelerate the implementation of over-thecounter(OTC) derivatives regulation and supervision and to increase transparency and standardization. The G-200 reaffirmed the commitment to trade all standardized OTC derivatives contracts on exchanges or electronic trading platforms, where appropriate, and clear through central counterparties (CCPs) by end-2012 at the latest. OTC derivative contracts should be reported to trade repositories (TRs). The G-20 will work towards the establishment of CCPs and TRs in line with global standards and ensure that national regulators and supervisors have access to all relevant information. In addition the G20 agreed to pursue policy measures with respect to haircut-setting and margining practices for securities financing and OTCderivatives transactions that will reduce procyclicality and enhance financial market resilience.

See the full text for all details.

Toronto, June 27 th, 2010

WWW.TREASURYANDFINANCE.INFO

Source: G-20, WWW.G20.ORG

  • The Framework for Strong, Sustainable and Balanced Growth

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