G20 Foundation Research G20 Russia Summit 2013 | Page 7

7 [Evaluation of the G20 Leaders Summit in St Petersburg on September 5-6] add more loss absorbing capacity to financial institutions when they fail 9 . Another goal is to increase transparency of over-the-counter derivatives markets implementing minimum capital and margining requirements and central counterparties in order to mitigate risks 10 . Credit rating agencies are now subject to stronger oversight, regulation and transparency requirements about their underlying processes 11 . As proposed by the Youth 20 outreach group, the need for sound financial education among young people was included in the Leaders Declaration 12 . We are looking forward to concrete steps and notify the potential of initiatives by the OECD, International Network for Financial Education and the World Bank. Another prominent proposal was the tighter regulation of so called shadow banks, which are entities engaging in bank like activities (e.g. money market funds, hedge funds) but do not face the same regulations as banks, yet. The Financial Stability Board estimates the size of the shadow banking sector to be 67 trillion USD in 2011 13 , with the volume of transactions growing dramatically before the financial crisis. In our view, the growing importance, and the role of the shadow banking sector in the financial crisis, justifies tighter regulation. However, we also see the problem of diversity and complexity in shadow banking system. Critics, such as Harvard Historian Niall Ferguson, point out that regulating a complex system with more complex regulation makes it even more fragile in the end 14 . The sheer numbers of institutions which are involved in the global financial system shows the difficulties and the complexity regulators have to overcome. In our point of view a lot of work still needs to be done as neither a financial transaction tax nor the regulation of high frequency traders, which caused several near market collapses in the United States recently, were adequately addressed by the G20 summit. Furthermore we observed several national states such as Germany pushing for a tighter regulation, which will possibly be achieved within the EU framework.                                                                                                                         9 See #67-#70 of the Leaders Declaration 10 See #71 of the Leaders Declaration 11 See #72 of the Leaders Declaration 12 See #78-80 of the Leaders Declaration 13 Financial Stability Board, Global Shadow Banking Monitoring Report 2012 14 Ferguson, Niall (2012). The Great Degeneration