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Foreign Exchange

FX comment: G20, government risk, commodities and prop

Despite the volume of the ‘currency war’ rhetoric, the G20 meeting in Seoul turned out to be of little consequence for markets. Less was heard of another strand to Seoul proceedings that will have some influence, on so-called Sifis, but the speed of progress is likely to match that of drying cement.

What happened? The Financial Stability Board reported to the G20 “on progress and next steps in the implementation of the G20 recommendations for strengthening financial stability”.

The G20 endorsed the Basle Committee’s new bank and liquidity framework (Basle III) with the same enthusiasm that it signed off on Basle II, as well as endorsing the FSB’s framework for reducing the risks posed by systematically important financial institutions (Sifis).

Helpfully the FSB has come up with the more precise subdivision of Sifi: the G-Sifi, which is a financial institution that is “clearly systemic in a global context”.

It is all very well-meaning: early on, the report declares that it “sets out recommendations for improving the authorities’ ability to resolve such institutions in an orderly manner, without exposing tax-payers to loss, while maintaining continuity of their vital economic functions”.

So far as I could work out (when my eyes were not glazing over), there should be some meat on the bones – determination of which institutions are G-Sifis and the “magnitude of additional loss absorbency” they should maintain – by mid-2011.

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