22 June 2009

OECD - Priorities for Reform and Strategies which will Phase-out Emergency Measures

The report discusses the different causes of the financial crisis and analyzes the priorities for reforming incentives in financial markets and the phasing out of emergency measures.

The report discusses the different causes of the financial crisis and analyzes the priorities for reforming incentives in financial markets and the phasing out of emergency measures.

 

To encourage a prudent balance between risk and the search for return in banking, the report provides several measures to be adopted, including:

Ø       Stress integrity and transparency of markets; priorities should include disclosure and protection against fraud.

Ø       Avoiding impediments to international investment flows will be instrumental to attracting sufficient amounts of new capital

Ø       Strengthen understanding of how tax policies affect the soundness of financial markets. 

Ø       Strengthen governance of financial institutions and ensure accountability to owners and creditors with capital at risk. Non- Operating Holding Company structures should be encouraged for complex financial firms.

 

Regarding the exit strategies, governments will need to begin the phasing out of their support measures. Getting the exit process right will be more important than speed, the report states. This includes:

Ø       The time-line for exit (including a full sell down in government voting shares) will be conditional in part on progress with regulatory and other reforms consistent with the above principles.

Ø       Level competitive playing fields will eventually be re-established and support will be withdrawn.

Ø       As adequate pools of equity capital become available, state owned or controlled financial firms will be privatized and expected to operate without recourse to any implicit guarantees that state ownership usually implies.

Ø       Reinforce public confidence in, and the financial soundness of, private pension systems and promote hybrid arrangements to reduce risk.

 

Full report

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