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May/June 2011
Vol. 36, No. 3


Economic justice: Learn more about the FSB

According to G24 Secretariat Amar Bhattacharya, who spoke recently during meetings of the IMF and World Bank in Washington D.C., the Financial Stability Board should be considered as the fourth pillar of global economic decision-making architecture, adding the letters "FSB" to the alphabet soup of IMF, WTO and World Bank. (The G24 is an intergovernmental agency of countries from the global south.) After the economic crisis of 2008, the governments of the G20 – the 20 most powerful country economies in the world – created the FSB to "coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies."

Composed of representatives from regulatory agencies in the G20 countries, together with representatives of other "financially important" countries (Switzerland, Singapore, Netherlands, Spain and the Special Administrative Region of Hong Kong), the FSB lacks clear procedures or guidelines for its work, leaving a great deal of power in the hands of the chair, currently Mario Draghi of the Bank of Italy. People who work in the FSB say the plenary sessions are little more than rubber stamping rituals where proposals from its working groups are passed with little discussion.

It is unclear which of the numerous working groups and committees are important or influential. For example, in its February 2011 progress report, the FSB reported that four different groups are exploring the issue of commodity market regulations: IOSCO (International Organization of Security Commissions), the CPSS (Committee on Payments and Settlement Systems), the Over-the-Counter (OTC) Derivatives Supervisors Group and the OTC Derivatives Regulators Forum. At the same time, the G20 has asked the UN Food and Agriculture Organization to prepare a report on the issue and has established a commodity prices study group chaired by Japan. Global hunger activists do not know which of these six different groups will be the one that actually influences policy. Even within the FSB there seems to be confusion over the same issue.

While the FSB does not establish or enforce regulations, it does work to build international consensus on how to best regulate financial markets through accounting standards, regulation of securities markets including commodities and derivatives, as well as regulations for banks, insurance companies and deposit insurance. While these themes may seem esoteric and unrelated to international development, the 2008 global financial crisis showed how poorly developed financial regulations can undermine the global economy.

Unfortunately, while the FSB is an important new part of the global economic structure, it is far less transparent than the IMF, World Bank or WTO and has fewer channels for input from countries in the Global South or civil society than the other institutions. It was only after years of pressure from activists around the world that those other institutions began to be more transparent and participative.

While the FSB represents a new challenge for civil society, in terms of struggling for greater transparency and inclusion, it also represents a much larger test. In the past 30 years, the financial sectors of the global economy have grown to unimaginable proportions. In 2009, global gross domestic product was $70 billion while the unregulated derivatives markets were estimated to be $605 trillion (estimated because they are unregulated and opaque markets). Banks have been able to gain power partly due to the fact that finance is an area that very few people understand well. Even within governments, there is a significant lack of understanding of financial markets, which has allowed the financial sector to operate without oversight.

This is not a unique situation. When the debt crisis struck in the early 1980s, few social justice advocates knew how international debt markets functioned and were reluctant to get involved in the issue, which allowed debt to be used to subjugate countries in the Global South to severe free market reforms.

Similarly, in the early 1990s with the proposal of a very new, and more destructive, form of trade agreement in NAFTA, many groups were initially reluctant to engage in the confusing world of international trade. But today, most activists are mini-experts on issues of international debt and trade. In the same way, today, social justice activists need to begin to educate themselves on the workings of the financial system. Only then will there be a voice to counter the current monologue of bankers in halls of power.

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