RSS FeedBy M. Isi Eromosele
The high growth of the global capital markets from the 1990s up until 2007 was primarily fueled by technical changes in financial transactions and progressive opening of national financial systems. The keys to stability in financial flows are regulations that guide private sector behavior and governments’ monetary policies.
It has always been essential for there to be suitable supervision of domestic and international financial markets and institutions to prevent financial market failure. The existing global financial system needs to be strengthened to adequately deal with challenges inherent in the altered financial setting.
A great number of standards and codes that are to be observed by emerging countries are already in place. The Financial Stability Forum (FSF) has highlighted 12 key codes and standards which are critical to the financial stability of the global financial system.
The FSF Compendium of Standards contains the work of six separate bodies: the Basil Committee on Banking Supervision (BCBS); the Committee on Payment and Settlement Systems (CPSS); the International Association of Insurance Supervisors (IAIS); the International Monetary Fund (IMF); the International Organization of Securities Commission (IOSCO) and the Organization for Economic Cooperation and Development (OECD). The standards for the supervised strengthening of the global banking system are well defined.
Do these codes and standards work and are they relevant to all the activities going on in the world financial markets today? It is difficult and costly to enforce these codes and standards all at once. Whether they really affect market behavior is a debatable issue. Despite improvements in the technical aspects of risk modeling and the availability of market financial information on a timely basis, global markets still tend to react collectively to unrelated news which does not reflect the fundamental underpinning of global finance.
When forums or agencies draw up global financial codes and standards, emerging market economies are not included in the equation. If the relevant agencies are to introduce a new set of common international standards, they should ensure that the countries that would be most affected by these standards, emerging countries, are closely involved in the design and implementation phases.
There are two reasons why this is imperative. First, the legitimacy of these documents will be strengthened. Second, the process would be enhanced by drawing on the knowledge and experience of participants from the emerging economies.
It should be noted that not all countries would be able to meet every stricture of these codes and standards. This is because they are not all at the same level of financial development. Poorer emerging market economies cannot be expected to adhere to these standards at the same level as developed countries with decades of advanced economies. Additionally, it is unfair for codes and standards to be biased toward a particular model fitting one or a group of countries. Consideration should be given to the views of countries from different parts of the world’s economic strata.
For the poorest developing countries with not so advanced economies, technical and financial support would be necessary to help them implement global codes and standards. Failure to help these countries become familiar with these standards as well as adhere to them will result in their inability to fully implement their programs of economic development.
There is a need for financial forums and agencies to apply relevant regulatory standards to global market economies. However, these codes and standards must be flexible in terms of their timing and scope.
This flexibility is necessary to facilitate modification to exact uniqueness of emerging market economies. International organizations responsible for global financial standards (the Financial Stability Forum, specifically) must strive to stand for emerging market economies. It is these economies where proposed codes and standards will have the most effect.
M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance
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