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The 29 financial institutes around the world that will be required to increase their capital ratio include the Deutsche Bank and the Commerzbank. The Financial Stability Board (FSB) is also to monitor bonus payments made by banks, and publish the results at regular intervals.

Supervising the shadow banking system

The so-called shadow banking system is to be more closely supervised in future. The term shadow banking system covers institutions which basically act like banks (like some hedge funds) although they are not subject to the same supervision as banks. The FSB was mandated to devise methods to better control high-risk speculative business by the end of 2012.

The G20 states also intend to control the derivatives market more strictly. Derivatives are a sort of bet on price trends and are basically intended to provide protection against major fluctuations in exchange rates. The G20 will also be evaluating how the credit default swaps (CDS) market works. These are sometimes used to speculate against individual states.

IMF to gain influence

The International Monetary Fund (IMF) is to be accorded more influence in the global economy. The Chancellor confirmed, for instance, that Italy will in future be subjected to an IMF monitoring process. To prevent other states becoming infected by the financial crisis, the IMF is to be allowed to issue short-term liquidity loans in future. In this way, during systemic financial system crises, the IMF will be able to extend short-term support to countries that find themselves facing difficulties through no fault of their own.

The IMF will dedicate its existing precautionary and liquidity line to the new instrument. The details are still to be hammered out by the Executive Directors of the IMF in the weeks ahead.

Fighting tax evasion

Over and above this, the heads of state and government of the G20 states agreed that every state must do its bit to step up growth and create jobs. Germany reminded the G20 states of the pledge made at the Toronto Summit two years ago, that the G20 states would half their budget deficits by 2013 and stabilise their level of debt by 2016.

In the war on tax evasion, Angela Merkel reported that eleven financial centres would be subjected to rigorous scrutiny. These tax havens have not made the necessary progress.

Cannes Summit Final Declaration

In the final declaration the G20 states also pledge to step up domestic demand. The emerging markets too are putting their faith in higher growth in their own countries. China has promised to show greater flexibility with respect to exchange rates with the Chinese currency. Overall the G20 spoke out in favour of moving more swiftly towards a flexible, market-oriented exchange rate system.

The Chancellor deemed the work on a reform of the international monetary system a milestone. Exchange rates are to better reflect underlying economic fundamentals.