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Date Posted: 14:38:23 01/28/09 Wed
Author: pastor lewis
Subject: Britain's Financial Services Authority chairman Adair

Newsday.com
Britain's top financial regulator calls for world watchdog but says must wait
By EDITH M. LEDERER

Associated Press Writer

5:22 PM EST, January 28, 2009

DAVOS, Switzerland (AP) — Britain's top financial regulator said Wednesday institutions such as the International Monetary Fund must tackle the economic crisis, but that global rules — and perhaps even a world regulatory body — will be needed eventually.

Britain's Financial Services Authority chairman Adair Turner acknowledged, however, that any changes would require time.

"In the long term, we will need to head towards some sort of treaty-based organization which has similar powers in relation to financial regulation that the WTO has in trade," Turner told government and business leaders at the World Economic Forum. "I do not think there is any chance of it happening anytime soon."

"In the short-term — over the next two to three years — we simply have to put the energy and the political leadership into making the existing architecture work as best as possible," Turner said.

Combatting the crisis will require banks to keep a bigger cushion to ensure that ample cash is always available for transactions and that "shadow banks, Internet banks, mutual funds ... and to a degree hedge funds" are adequately regulated, Turner said.

"The crucial principle in future is that if it looks like a bank and quacks like a bank, we better regulate it like a bank," he said while sitting on a financial regulation panel at this year's global gathering, which is focusing on solutions to the financial crisis. "We have to regulate according to economic substance, not legal form."

Turner said reaching agreement on global regulations at the moment is very difficult because there is no equivalent to the World Trade Organization for the financial industry.

Government and business leaders must use the Washington-based IMF and bodies like the Financial Stability Forum, created after the 1998 financial crashes and which brings together central bankers, regulators and treasury officials from the world's 10 wealthiest nations, he said.

"I think the challenge is simultaneously to debate whether at some stage in the future we can create a treaty-based organization, or build on existing treaty-based organizations, to have a better architecture," Turner said.

Suzanne Nora Johnson, a former vice chairman of the Goldman Sachs Group who heads the World Economic Forum's Council on Systemic Financial Risk, said a new global financial organization "should be very seriously considered."

"A treaty organization analogous to the WTO would be very helpful as a way to think about bringing together central banks, security regulators," she said.

That would reduce "regulatory arbitrage," a practice in which individuals and institutions move their business to a place with more relaxed rules on their financial operations.

"If there's a more common set of principles," Nora Johnson said, "then you don't get people having bad behavior in some other jurisdiction that then has collateral damage to other people who have played by the rules."

Jacob Wallenberg, chairman of Investor AB in Sweden, urged that in the discussion of regulations, government leaders and regulators should "listen to business as well."

"If we over-regulate, we will kill innovation," he said.

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