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Speech by A. Kostin at B20 financing growth taskforce meeting


Speech by A. Kostin at B20 financing growth taskforce meeting.

Dear Mr. Zhang, Esteemed Co-Chairs, Ladies and gentlemen,

First of all, I deeply appreciate all the work done by the B20 Financing Growth Taskforce members under our Chinese colleagues’ guidance. The draft of Policy Paper delivered for our consideration today is well-structured and full of interesting ideas and proposals. I also extend my words of gratitude to an effective organization of the working process within the Taskforce.

Let me share some observations regarding B20/G20 today’s activities from a broader perspective. The G20 was created as a common response to the outbreak of the global financial crisis. Today there is no doubt that the G20 mechanism — and the B20 as an integral part of it — proved to be effective in coping with financial instability. The financial track will for long remain pivotal for the G20 overall success.

Two main factors were crucial in the G20 evolving into an acknowledged global institution. First, the diversity of the G20 composition. Second, the win-win principle and the spirit of cooperation, which until recently firmly underpinned our joint efforts. Combined, these two factors enabled us to set an ambitious financial agenda and promptly deliver comprehensive and sustainable solutions. No doubt, that such major decisions as Basel III agreement, or the Financial Stability Board establishment would have been impossible without mutual respect and trust.

Since the G20 inception, however, the global landscape has become ever more complex and challenging. The observation equally applies to particular areas and to more «systemic» items.

In the area of finance, until now a focal point of the G20/B20 discussions has been seeking for delicate balance between tightened (and sometimes excessive) regulation and ability of financial institutions to provide adequate and stable funding to support growth. However, on top of agenda today raises also an issue of litigation overburden due to outburst of legal lawsuits against the largest banks on various misdeeds and wrongdoings in the post-crisis period. The issue is a new aspect in the regulation context.

According to some expert estimates, fines and settlements paid by the European and American banks in the recent years amounted to US $ 350 billion, making as much as 25% of sector’s profits in both geographies.

In the B20 we are not in the position to give any legal assessment, but the situation seems very controversial as integrity of the sector’s rules of game is put under question. I believe an impact of such nature also worth being discussed and indicated in the B20 recommendations this year for further elaboration under next presidencies.

Briefly on some "systemic" challenges we face: First, though the crisis is over, recovery remains fragile, while performances of major economies continue to diverge. Second, key elements of the global order have entered a phase of profound transformation. Third, new mega-regional initiatives aimed at altering existing economic and trade rules are rapidly evolving. To sum it up: Magnitude and mixture of "old" and "new" challenges highlights the urgent need for the G20 to continue acting in the spirit of partnership. The question is "Will the G20 remain capable in addressing effectively the modern agenda?"

I regret, given the current state of things the answer would be negative. Today the G20/B20 mechanism is operating much below its real capacity. At the heart of the situation are repressive measures, initiated on purely political considerations and executed within the G20 itself.

Several years ago we witnessed excessive multi-billion punitive fines which were imposed by one of the G20 jurisdiction on a group of respectable European banking majors from other G20 jurisdictions. Their only wrongdoing were conventional transactions with the third countries under unilaterally imposed sanctions. In 2014 leading Russian banks got under sanctions in connection with the internal crisis in Ukraine; also on political grounds.

Colleagues, we should realize that negative spillover effect of political interference into the area of finance goes far beyond particular financial institutions or countries. It is emerging as a common concern, because such practice induces a disruptive impact on the global financial sector as a whole.

First, the very notion of sanctions deeply contradicts the spirit and the letter of G20/B20 activities and barely makes possible meeting of our strategic objective — to build a more resilient and more stable global financial system. Second, use of economic and financial instruments to advance one’s political and geopolitical objectives badly hits global trust and seriously questions the principles global financial system has been working upon until recently.

Furthermore, centrality of one national financial system in the global economy gives it freedom of action to force almost any financial institution across the world follow unilaterally imposed restrictive measures. Financial institutions worldwide are pressed to opt for "what if" strategy, thus increasing global economic uncertainty. This is another factor that may easily reverse further integration of the global financial market and removal of entry barriers.

Last week the Russian state carried a sovereign bond issuance, the first one since 2013. It’s important to stress that sovereign bond placements are no subject to sanctions against Russia. The deal was supposed to be a standard one. Preliminary contacts with international investors showed their strong interest and high demand for the papers, which was actually four times more what had been offered. However, when the deal was about to be completed, an unexpected problem aroused due to unprecedented political pressure executed on the US and European financial institutions. Western banks decided to pull out from underwriting, and many investors had to withdraw their bids. As the main reason many of them unofficially cited a warning statement of the US State Department. On top of all, Euroclear and Clearstream declined to service the issue. Fortunately, in the end of the day the transaction was sorted out via domestic platform, and everything was quite OK.

However specific, the case highlights the topicality of the B20 concern expressed in our recommendation to further promote global financial market integration and openness. Our Policy Paper calls for the G20 policymakers "to engage in more dialogue that would promote the integration and openness of global financial markets" — I suggest adding the following — "and refrain from restrictive measures of political nature in meeting the objective".

Dear Taskforce members,

History of the G20 up to date has demonstrated that only together the world’s major economies are capable of putting forward tangible initiatives to promote common objectives of balanced and resilient growth.

If we want the G20/B20 to preserve its role of premier forum of global economic governance we should firmly stick to its basic principles. That is keeping the forum’s clearly economic focus, supporting mutual trust and respect while avoiding any attempts of agenda’s unnecessary politization.

Thank you!

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