RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/M/64 
27 September 2010 
 
 (10-4910) 
Committee on Trade in Financial Services  
  
 
REPORT OF THE MEETING HELD ON 29 JUNE 2010 
 
Note by the Secretariat
1 
 
1. The Committee on Trade in Financial Services held a meeting on 29 J une 2010, under the 
chairmanship of Mrs. Helen Stylianou (Australia).   The agenda for this meeting is contained in 
Airgram WTO/AIR/3573/Rev.1.   
A. RECENT DEVELOPMENTS IN FI NANCIAL SERVICES TRADE - DEDICATED DISCUSSION ON THE 
FINANCIAL CRISIS AND TRADE IN FINANCIAL SERVICES  
2. The Chairperson  recalled that the decision to organize  a dedicated discussion on the financial 
crisis and trade in financial services had been take n in February 2010.  The outline for that discussion 
was contained in document JOB/SERV/9.  She said that the purpose was to allow Members to exchange information and discuss th eir experiences, and to be info rmed about research and activities 
carried out by other international organizations.  Re levant documents had been circulated prior to the 
meeting, in documents JOB/SERV/12 to 15. 
3. She explained that the discussion would be divide d in two segments.  The first segment would 
be devoted to presentations by four internati onal organizations:  the Bank for International 
Settlements (BIS), the International Monetary Fund  (IMF), the Financial Stability Board (FSB), and 
the Organization for Economic Cooperation and De velopment (OECD).  Those presentations would 
be followed by a question-and-answer session.  The second segment of the discussion would be 
devoted to an exchange of information and e xperiences among Members on the issues highlighted in 
paragraph 2(b) of the outline, as well as to other topi cs of interest for Members related to the financial 
crisis, such as its implications for fi nancial services trade and the Doha Round. 
4. She then introduced the first speaker, Mr Tam Ba youmi, Senior Advisor in the IMF Strategy, 
Policy and Review Department, who would make a presentation on "Cross-cutting Themes in 
Economies with Large Banking Systems". 
5. The IMF representative
 (Mr. Tam Bayoumi) said that the presentation was based on an IMF 
paper prepared last year on cross-cutting themes in economies with large banking systems.  He 
explained that such economies were confronted with particular risks due to the large amount of cross-
border loans (often denominated in foreign currencies) , limited fiscal resources, and lack of a reserve 
currency.  The following economies had been chosen for this study:  Iceland;  Ireland;  Hong Kong, 
China;  Singapore;  and Switzerland.  
6. He focused first on the run-up to the crisis.  By 2007, except for Singapore, banking assets in 
these economies represented more than 600 per cent of GDP.  In some cases, the growth in banking 
assets had been spectacular.  In Iceland, for example, banking assets went from 100 per cent of GDP 
                                                      
1  This document has been prepared  under the Secretariat's own responsibility and without prejudice to 
the positions of Members and to their rights and obligations under the WTO. S/FIN/M/64 
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  in 2001 to about 900 per cent in 2007.  In Si ngapore, however, banking assets over the period 2001-
2007 remained pretty stable, at about 200 per cent of GDP.  According to Mr. Bayoumi, there were 
two categories of economies within this group.  In Ireland and Iceland, on the one hand, the 
developments over the last decade were the result of a banking and housing market bubbles occurring together.  In Hong Kong, China and Singapore, the si ze of the banking systems remained fairly stable, 
and none of them suffered from a housing bubble.  Switzerland appeared as a case in-between:  the 
Swiss housing market had remained stable over this period, but since the two largest Swiss banks had 
significant investment banking operations in the United States, in a way, Switzerland had bought into somebody else's bubble.   
7. He summarized the main features of these banking  systems in the run-up to the crisis by 
reference to five indicators:  growth of bank asset s, growth of foreign bank assets, reliance on trading 
income, reliance on external financing, and relia nce on wholesale/short-term funding.  Ireland and 
Iceland had registered rapid growth in overall ba nk assets, together with Switzerland they had also 
experienced rapid growth in foreign bank assets and relied heavily on extern al financing.  While 
Ireland and Switzerland depended heav ily on trading income and on wholesale/short-term funding, 
Singapore and Hong Kong, China had none of these ch aracteristics.  The macroeconomic situation in 
the run-up to the crisis also showed two groups of economies, with Iceland and Ireland experiencing 
strong increases in house prices and credit, current acc ount deficits, structural fiscal weaknesses, and 
weak external liquidity buffers.   
8. These different features naturally led to differe nt policy responses once the crisis broke out.  
The governments concerned expanded retail deposit insurance and (with the exception of Hong Kong, 
China) provided some form of liquidity support to their banks.  Iceland, Ireland, and Switzerland also 
provided capital injections and asset purchases or sw aps.  In other words, these three countries felt 
compelled to support their banks.  In additi on, Iceland and Ireland guaranteed bank debt.  
9. Mr. Bayoumi said that three main reasons explai ned why the Asian banks in the sample fared 
better than the European ones: first, they were in  a high-growth and high-savings region, which made 
these banks sounder;  second, they had stronger regul ation;  and third, the banks themselves were 
more conservative and risk-averse, as a result of the pr evious crisis in Asia.  He added that banks in 
the two Asian economies had less leverage, had mo re liquid assets, and were better capitalized.  
10. Some important policy lessons c ould be drawn from the experience of these economies.  The 
first-best solution was, in his view, to have a st rong cross-border resolution system.  In addition, it 
was important to have strong regula tion and robust supervision, to take  quick action to clean up banks' 
balance sheets, and to develop strong fiscal and fore ign exchange buffers.  In addition, a case could be 
made in favour of encouraging subs idiarization, particularly in the case of banking systems with large 
foreign bank operations. 
11. The Chairperson
 turned then to Mr. Michael King, senior economist at the BIS Financial 
Markets Division.  
12. Mr. King presented an assessment of financial sector rescue programmes.  After reviewing 
the key events affecting the financial system since the fall of 2007, he described the rescue packages 
as falling into the following categories: deposit insu rance, restrictions on short selling in capital 
markets, capital injections into banks, guarant ees on banks' debt, actions to address banks' impaired 
assets (e.g. insurance against losses, purchase of bad assets), and bank nationalizations.  Rescue 
packages so far had represented a significant porti on of GDP:  as of 10 June 2009, the overall 
resources committed by 11 countries totalled €5 trillion or 18.8% of GDP;  while the actual outlays by 
mid-2009 amounted to €2 trillion or 7.6% of GDP.  S/FIN/M/64 
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  13. He then presented a paper entitled "Time to buy or just buying time? The market reaction to 
bank rescue packages" (BIS Working Paper No. 288), which contained research requested by the BIS 
Committee on the Global Financial System.  The obj ective of the research was to assess the market 
response to bank rescue packages announced in Oct ober 2008, and compare it across countries (i.e., 
how did the terms of rescue packages vary?;  and how did relative cost and conditions affect 
response?).  The analysis did not consider, howev er, the counterfactual case in which governments did 
not intervene to support systemically important banks.  
14. The initial market reaction to governments' announcements was positive.  However, after a 
few days, banks' stock prices continued to deterior ate in all countries except the United States, due to 
the perception that banks' situation was worse than  originally anticipated.  Credit Default Swaps 
(CDS) spreads narrowed prior to the announcements , and continued to narrow thereafter in all 
countries, which was perceived as positive for bank s' creditors.  The October 2008 rescue packages 
were good enough to stop panic, allowing governme nts to buy some time, but it soon became clear 
that these packages were insufficien t to deal with the crisis.  
15. The study measured the market reaction of ba nks' CDS spreads and stock prices for 52 banks 
from six countries (France, Germany, the Nether lands, Switzerland, the United Kingdom, and the 
United States), on the 50 trading days before and after the announcement in each country.  An event 
study methodology was used, which, albeit its many  limitations, provided  a measure of the wealth 
transfer between shareholders and creditors.  Daily  data from January 2006 to January 2009 was used.  
Acquired banks (Bear Stearns, Dresdner, ABN Am ro), bankrupt banks (Lehman), private foreign-
owned, and state-owned banks, and finance a nd insurance companies were excluded from the 
analysis.  The study examined the average respons e across banks headquartered in a given country 
and the reaction of banks targeted by specific actions.  
16. After explaining the methodology and showing the main results, Mr. King concluded that 
government interventions benefited creditors at th e expense of shareholders, with the average bank 
CDS spreads for each country narrowing around the announcements in all cases.  Despite a brief 
positive reaction, bank stock prices continued to underperform in all countries except the United 
States, where the generous terms of the governme nt support allowed bank stocks to outperform the 
market.  Stock prices of banks receiving direct gove rnment support did worse than those of banks not 
receiving government capital, suggesting the support provided a negative signal to shareholders.  
17. The response to bank-specific actions were mixed.   In general, capital injections were positive 
for creditors but negative for common shareholde rs, although there was considerable variation 
depending on a bank’s specific circumstances and the type of support provided.  The stock market 
response reflected the type of capital injected, the conditions attached to this capital, as well as the 
protection offered to common shareholders.  
18. Some policy lessons could be drawn from the st udy.  Firstly, governments should coordinate 
a global response to ensure a level playing field in  the banking sector.  Secondly, the right incentives 
should be established in order to avoid moral ha zard.  Thirdly, government support should be 
temporary, and tax payers should not be expected to pay the costs.  Finally, transparency and 
timeliness of government policies was also essential to ensure an adequate market response. 
19. The Chairperson  then introduced, Mr. Sebastian Schich, Principal Economist at the OECD 
Financial Affairs Division (Directorate of Corporat e and Financial Affairs).  His presentation would 
focus on "The Government as Guarantor of Last  Resort: Benefits, Costs, and Premium Setting 
Issues". 
20. Mr. Schich explained that a country's financia l safety net was typically composed of three 
elements: the lender of last resort, a deposit insu rance mechanism, and the regulatory and supervisory S/FIN/M/64 
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  framework.  A distinctive feature of the current financial crisis was the addition of a fourth 
government function, namely the gove rnment as guarantor of last r esort, which manifested itself in 
various sorts of government guarantees on banks' assets and liabilities (retail deposits and wholesale 
funding).  
21. Governments' guarantees for banks helped stabilise the financial system, raising the 
likelihood that depositors and credito rs continue to provide a stable source of financing, and providing 
a safe investment alternative when economic agents' flight-to-safety attitude was at its peak.  And that 
was achieved with only limited upfront fiscal costs.  Nevertheless, he considered that some other costs 
should be considered, namely the existence of  large contingent fiscal liabilities, competitive 
distortions, and moral hazard.  The latter was not a theoretical issues, but a practical one.  For one, 
there was a time inconsistency problem in a system ic crisis like the present one, as long as tools were 
unavailable to let even large institutions fail.  On  the other hand, the guarantor-of-last-resort function 
might de facto become part of the financial safety net. 
22. Issues surrounding premium setting were very important.  Ideally, to limit distortions to 
competition and incentives, authorities needed to set  risk-based premiums, adjusted consistently 
across countries.  However, the results in this regard  had been mixed in practice, with the track record 
differing depending on the specific type of guarantee.  Thus, while fees for asset liability guarantees 
were risk-based, as fees for guarantees of bank bonds,  in most cases no additional fee had been levied 
for the expanded retail deposit insurance.  In fact , decisions to expand deposit protection had not been 
coordinated, and in some cases governmental a nnouncements made explicit reference to other 
governments' actions and the need to ensure  a level playing field for domestic banks.  
23. He further explained that in the case of  government-supported bond guarantees, the actual 
costs of guarantees for the bank issuing the bond consis ted of the sum of fees and issuance spreads.  
Fee structures had tended to converge among countries,  with special efforts being made in Europe 
towards harmonisation (e.g. European Central Bank Council recommendation to use CDS history).  He argued, however, that it was not necessarily d esirable to impose similar fees across countries, 
because the quality of the guarantor (i.e. the govern ment) differed.  As a result, weaker banks from 
strong countries (i.e. countries where the sovereign guarantee had a high value) tended to have access 
to relatively cheaper funding than strong banks from weaker countries.  This situation created the potential for distortions, which could only be avoide d if the quality of the guarantor was also taken 
into account when defining the guarantee fee structure. 
24. In concluding, Mr. Schich considered that po licies had been effective in averting the worst 
dangers.  However, they did not come without costs,  particularly in terms of potential distortions to 
competition and to banks' incentives.  Proposals being currently discussed by the international 
community focused on strengthening banks' self-insurance (e.g. requiring larger capital and liquidity buffers), limiting risk-taking (e.g. restricting pe rmissible activities, strengthening supervision, and 
establishing effective resolution regimes), and char ging specific (systemic risk-motivated) levies.  
Most of these proposals consisted on imposing surc harges on banking activities that contributed to the 
creation of systemic risk.  If these measures succ eeded in internalizing the negative externalities 
created by banks, and thus reduced systemic risk, the guarantor of last resort function could be 
expected to be invoked more rarely.  If they did not succeed, however, and if  the guarantor of last 
resort function were to be invoked again, some le ssons from the current experience could be drawn so 
as to reduce associated costs.  
25. The Chairperson
 turned then to the representative fro m the Financial Stability Board (FSB), 
Mr. Nigel Jenkinson, who would focus on "Priorities on Global Regulatory Reform."  
26. Mr. N. Jenkinson said that his presentation was different from the previous ones, since it 
would focus on the latest regulatory reform initiativ es taken by the international community, rather  S/FIN/M/64 
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  than presenting a specific piece of research.  The highest priorities consisted of developing a 
framework and tools to cope with system-wide or macro-prudential risks;  strengthening robustness of 
the banking system;  improving incentives and market  functioning;  enhanci ng crisis management 
planning;  eliminating moral hazard from systemically  important financial ins titutions (the so-called 
"too-big-to-fail");  and improving adherence to standards.   
27. Referring to macro-prudential supervision, he sai d that the crisis had shown that the safety 
and soundness of individual institutions was clearly necessary, but not sufficient.  System-wide stability needed to be protected.  Regulatory tools needed to be developed, both in a time-series and 
cross-section dimension.  On a time-series dimension, it was necessary to contain the build-up of system-wide risks, such as risk  concentrations, asset price bubbles, and leverage.  The cross-section 
dimension required the containment of contagion,  lowering interdependence (e.g. large exposures, 
constraints/disincentives on size, and constraints/ disincentives on structure), and strengthening market 
infrastructure.  
28. Creating a robust banking system was of the ut most importance.  Initiatives in that regard 
included strengthening the capital framework, through inter alia  higher and more risk-sensitive capital 
and even a supplementary leverage ratio, as well as the creation of a new international liquidity 
standard.  Proposals by the Basel Committee on Banking Supervision were expected by the G20 
Summit in Seoul on November 10
th.  Incentives and market functioning needed to be improved, 
focusing on issues such as compensation and bank g overnance, market infrastructure (e.g. regulation 
of over-the-counter derivatives, credit rating agencies), and market discipline (e.g. transparency, disclosure, and accounting standards).   
29. The "regulatory perimeter" would be certainly expanded, but that would not be effective if 
financial institutions could shift business from regulat ed areas to unregulated ones.  It was therefore 
essential to maintain a level playing field am ong financial institutions, and avoid market 
fragmentation, protectionism and regulatory arbitrage.  The Joint Forum was promoting sectoral 
consistency among banking, insurance and securities standards.  
30. Crisis management needed to be improved, fo r example by implementing the FSB principles 
adopted in April 2009, and strengthening national and cross-border resolution frameworks.  The too-
big-to-fail – or more precisely the "too-big/compl ex/interconnected-to fail" – problem needed to be 
addressed.  Systemically important financial institu tions (SIFIs) had typically been supported in the 
crisis to protect stability, thus substantially incr easing moral hazard.  The FSB, which was expected to 
propose solutions in this area by October 2010, was focusing on three strands: to lower the probability 
and impact of failure, to improve crisis planning and resolution frameworks, and to strengthen market 
infrastructure.  
31. After these presentations, the Chairperson
 opened the floor for questions by Members. 
32. The representative of the Dominican Republic  observed that countries that entered into 
agreements with the IMF were sometimes requested to bring down the level of banks' legal reserves, 
therefore reducing liquidity levels, when the presen tation by the IMF had just shown that economies 
like Hong Kong, China and Singapore where liquidity levels were between 15 and 20 per cent, fared 
better than the other economies in the sample.  Sec ondly, he said that, as demonstrated by the failure 
of Lehman Brothers, the lender of last resort f unction was extremely important in order to grapple 
with systemic problems.  Finally, he referred to  the self-regulation ideology promoted in the  1990s, 
which led to a diminishing role for supervisory auth orities.  The current crisis had shown  that banks 
were unable to regulate themselves, self-regulati on thus ended up being no regulation at all. 
33. The representative of Hong Kong, China  asked the IMF representative whether he had 
observed any systemic differences among the five economies examined in terms of their regulatory S/FIN/M/64 
Page 6  
 
  and supervisory institutio ns.  Turning to the presentation by the BIS representative, he clarified that 
contrary to page 6 of the PowerPoint presentation,  Hong Kong, China did not inject capital into banks 
but took measures to enhance bank liquidity.  Finally, referring to the presentation by the OECD representative, he stressed the importance of depos it guarantee measures and the need to apply them 
in such a way as to avoid distortions to competition.  
34. The representative of Pakistan
 said that several lessons could be drawn from the 
presentations.  The first lesson was that, as shown by the IMF representative, rapid expansion of 
banking systems in a context of loose regulatory sy stems led to the crisis.  The second lesson was that 
rescue packages ended up socializing the costs ar ising from banks' problems.  The third lesson was 
that a robust regulatory framework was needed at th e national level.  Robust regulation should not be 
considered as an impediment to market access.  The fourth lesson to draw from these presentations 
was the recommendation to request the subsidiariza tion or localization of foreign banks.  He 
considered that many developing countries would be in  favour of such an approach.  Direct branching 
was not actually essential to liberalization market access.  Market access could be achieved through 
locally-established foreign bank subsidiaries.  The size of institutions should also be taken into 
account.  
35. Referring to the BIS presentation, he stress ed that sometimes governments responded to 
rescue packages in other countries by implementing their own packages.  Second, transparency and 
timeliness of information were absolutely essentia l for the good implementation of these rescue 
packages.  The OECD presentation had made it cl ear that governments in developed economies had 
de facto  assumed a new function of guarantor of last reso rt.  From a WTO perspective, this could be 
considered a subsidy and, as such, might make lib eralization objectives at the WTO more difficult to 
achieve.  Referring to the FSB presentation, he c onsidered that another dimension of regulation 
should be considered, i.e. the cross-border dimension.  
36. The IMF representative  said he was not clear about the nature of the first question by the 
representative of Dominican Republic.  If a country entered into an IMF program, it was certainly 
because it had run out of liquidity.  On the other hand, bank liquidity was not equivalent to bank 
reserves.  The issue therefore needed  to be clarified.  Turning to the question about the bankruptcy of 
Lehman, he said that the US regulatory framework  distinguished between commercial banks, which 
were subject to deposit guarantee, and investment s banks, which were not.  Both Bear Stearns and 
Leman were investment banks and were therefor e not regarded as being within the regulatory 
perimeter.  The lesson to be drawn from that experi ence was that this perimeter should be expanded.  
Turning to the differences between the Asian and th e European economies in th e sample, he said that 
the differences did not lay in regulatory set-ups bu t in regulatory attitudes.  The Asian approach 
seemed more probing of banks and less focused on th e fulfilment of specific ratios.  In other words, 
the Asian regulators were more inclined to ask ba nks the rationale behind their activities, and were 
more prepared to put restraints on specific markets or products.  
37. He also said that rapid expansion of assets did not  always lead to a crisis.  However, very few 
crises occurred in the absence of a rapid expansion of credit.  In other words, rapid asset expansion 
was a necessary but not sufficient condition for a crisis  to occur.  Finally, he referred to the issue of 
foreign bank branching versus subsid iarization.  He clarified in that regard that the suggestion made 
was directed specifically at economies with large banking systems.  He would not make it a general principle for all economies and all banks.  Additio nally, it was worth noting that when it came to 
branching there was a big difference between Europe and the rest of the world.  European countries 
were obliged to allow other European banks to est ablish as branches and continue to be regulated by 
the home country authority.  In other words, if a br anch of an Icelandic bank established in the local 
market, the Icelandic regulator was in charge.  Th ese rules did not apply to the rest of the world, 
where additional constraints could be placed on foreign bank branches, making them look like 
subsidiaries.   S/FIN/M/64 
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  38. The OECD representative  said that distinguishing between problems of liquidity and solvency 
in a situation of stress was very difficult.  The boundary between these two conc epts tended to blur in 
times of crisis.  Contrary to what was implied in the comments by Dominican Republic, central banks did step in as lender of last resort.  And they ha d actually expanded the range of intervention, lending 
not only to financial institutions but also to market s, which were fulfilling a more significant role in 
the financial intermediation process.  
39. Making reference to the question by Dominican Republic, the BIS representative
 explained 
that Basel II had been designed in a way that allowe d sophisticated banks to use their internal risk 
management systems to determine how much capital should be held against assets.  Under Basel II, 
banks assessed the risks of their assets on the basis of  either external assessments or internal risk-
assessment models (if the so-called advanced appro ach was used by the bank).  One of the lessons 
learnt from the crisis was that banks did not necessar ily understand the risks of the assets that they 
were holding, and that in fact their internal m odels suffered from significant flaws since they were 
based on very short time series of data that did not  capture the potentially si gnificant increase in risks 
in extreme events.  The Basel capital adequacy  accord was negotiated by members of the Basel 
Committee on Banking Supervision (BCBS), not by th e BIS, which only hosted the secretariat for the 
BCBS.  The BCBS was reviewing the accord to solve shortcomings.  
40. He agreed with the observation made by Hong Kong, China regarding capital injections into 
banks.  Turning to the comments made by the delega tion of Pakistan, he explained that the BIS had 
looked into the operations of internationally active banks, particularly in economies with large foreign 
bank ownership.  One interesting finding was that ba nks that funded themselves and lent in the local 
market, i.e. banks whose local assets matched local lia bilities, were more resilient.  Issues like this one 
would probably continue to be discussed since, as  had been pointed out, another lesson from this 
crisis was that banks in advanced economies that  found themselves in trouble transferred funds from 
their operations in emerging markets into their ope rations in advanced markets, where they were 
facing funding shortages.  What was an advantag e in normal times, because it allowed banks to 
manage their funds globally and keep their costs as low as possible, turned out to be a transmission 
mechanism in times of crisis.  
41. The FSB representative  said that not only banks had tailed to understand the risks that they 
were facing;  neither did the rating agencies.  Risk assessment and risk management must be improved collectively.  He agreed with Pakistan on the importance of the cross-border dimension of 
regulation.  The work on cross-border resolution mechan isms was particularly relevant in that regard.  
42. The representative of Canada
 requested a clarification regarding page 6 in Mr. King's 
presentation, according to which Canada appeared  as having made asset purchases in the financial 
sector.  He was not aware of such assets purchases.  
43. The representative of China  asked the panellists whether th eir respective organizations had 
come up with a measure of the total losses brought about by the financial crisis.  Secondly, she 
enquired what major lessons could be drawn from this financial crisis.  
44. The representative of Argentina  said that, according to the paper presented by Mr. King, the 
announcement of bank rescue packag es was associated with narrowi ng spreads in five of the six 
countries in the sample, with the average bank CDS in the sample declining by 11.8 per cent in 
relation to the market.  Another paper co-author ed by Mr. King, entitled "An assessment of the 
financial sector rescue programs", explained that  government guarantees on bonds issued by banks 
provided another example of the distortions that go vernment intervention could introduce.  In this 
particulr case, due to government guarantees weak banks from strong countries had access to cheaper 
funding than strong banks from weak countries.  As the authors of that paper concluded, such a S/FIN/M/64 
Page 8  
 
  pricing of risk was not what could be expected  from a well functioning and efficient market.  He 
invited Mr. King to further elaborate on that conclusion.   
45. He also asked the OECD representative whether his organization had b een able to quantify 
the impact of specific government guarantees on competition, and whether guarantees should be 
regulated differently.  He finally asked the IM F representative to explain the statement made by 
the IMF in chapter 3 of the Global Financial Stab ility Report (October 2009) that, although in a crisis 
banks' debt guarantee helped preserve financial st ability by supporting funding liquidity, they were 
highly distortionary since the government assumed the risk instead of the debt-issuing entity.  This 
reduced the market incentive to monitor risk.  
46. The representative of South Africa
 echoed the questions raised by Argentina and asked the 
IMF representative if he could further elaborate on the idea that governments could make foreign 
bank branches look like subsidiaries, or assume the character of subsidiaries.  This issue was 
important, particularly for Members which had made  specific commitments on branching, and should 
be explored by this Committee.  He then asked a bout the effect on the financial system of extending 
government guarantees over time and thereby transfer ring risk from the banks to the sovereign.  
47. The representative of India  asked whether any of these or ganizations had quantified the 
effects of these rescue packages on conditions of competition.   
48. Replying to the question by Canada, the BIS representative  said that the database used had 
been developed by the BIS itself, was publicly  available, and included announced government 
initiatives as well as outlays or commitments under those initiatives.  In the case of Canada, the 
Minister of Finance had directed the Canada Mo rtgage Housing Corporation to purchase – or be 
available to purchase – mortgage-b acked assets and that was why the BIS referred to this as a form of 
asset purchase.  
49. In spite of the attempts made by some intern ational organizations, like the BIS and the IMF, 
he did not think that anyone could say with much c onfidence what the costs of the crisis had been thus 
far.  Turning to the question raised by Argentina,  he said that when governments agreed to guarantee 
the bonds issued by their banks, the costs across count ries turned out to be linked to the rating of the 
country itself, and not necessarily to the rating of th e bank.  Therefore a bank with a high credit rating 
in a country with a lower credit rating would be ch arged a higher rate on its bonds than a weaker bank 
in a country benefiting from a high credit rating.  For all its limitations, the market response to 
government announcements provided at least one es timate of the differential impact of government 
interventions.  
50. The FSB representative  said that his organization had not estimated the cost of the crisis.  He 
added that the six high-level objectives described in his presentations could be characterized as a form 
of re-regulation.  
51. The IMF representative  said that there were different wa ys of measuring the costs of the 
crisis, depending on the perspective adopted.  One possi bility was to consider fiscal costs, either as an 
absolute value or as a proportion of GDP, arising from government interventions.  Another possibility 
was to look at the economic costs, in terms of out put lost and higher unemployment, which might in 
turn impact on the fiscal costs of the crisis due to increased social spending.  In any case, these 
calculations were extremely complex.  Referring to  subsidiarization, he said that the distinction 
between foreign bank branches and subsidiaries s till mattered everywhere, save probably for Europe, 
where home-country regulation prevailed.  Howeve r, in other countries host-country regulators had 
more responsibility over foreign bank branches, a nd could impose conditions or restrict their 
activities.   S/FIN/M/64 
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  52. The OECD representative  said that his organization had not estimated the quantitative impact 
of the costs of guarantees.   
53. The representative of Ecuador  asked the IMF representative to further elaborate on the 
concept of socialization of risk and on the type of regulatory restrictions imposed by the Asian 
governments in the sample, which helped their banks face the crisis.  
54. The representative of Turkey  asked whether there were any regulatory attempts to recover the 
costs of these rescue packages.  
55. The representative of Japan  wondered what role the WTO could play in support of the 
ongoing efforts of financial regulators.   
56. The IMF representative  explained the meaning of the expression "socialization of risks" by 
reference to the Irish experience, where the govern ment had decided to guarantee the entire liabilities 
of banks.  It had thus assumed the risks of banks.  Turning to the questions on regulation, he said that 
stricter regulation of banks' activities could lead to less innovation.  Some countries, like the US and the UK, were operating new taxes to recover the money spent on bank rescue packages.  Regarding 
the trading of derivatives over-the-counter, he said that the idea was to move those trades to 
exchanges so as to increase transparency and liquidity.  He fina lly considered that the WTO had a 
responsibility to ensure that governments countries did not resort to protectionist measures, and that 
there was some consistency across countries.  
57. The Chairperson
 turned to the second segment of the dedicated discussion, to be devoted to 
an exchange of information and experiences among Members on the issues highlighted in paragraph 2 
of document JOB/SERV/9. 
58. The representative of Canada  said that in the midst of the crisis, in the fall of 2008, banks had 
stopped lending.  This naturally impacted on trade in financial services.  However, focusing on trade 
alone missed in his view the big picture.  The global financial system had been on the edge of 
collapse, and it was only through the concerted effo rt of the G20 countries that complete financial 
meltdown was averted.  Beginning in Washington in November 2008, G20 leaders responded to the 
systemic financial collapse and the global recession with quick, decisive and coordinated action.  As 
demonstrated at the Leaders' Summit in Toront o, considerable progress had been made on the 
financial sector reform agenda, but more work was required.  Financial markets were still fragile and 
credit flows restrained.  
59. Long before the crisis began, Ca nada's financial system had b een well capitalized, with one of 
the most effective regulatory frameworks in the world.   Canada's banks and ot her financial institutions 
performed relatively well throughout the financial cris is.  In his view, Canada's performance could be 
attributed to good macroeconomic fundamentals, a conservative risk appetite, and a strong regulatory 
regime;  attributes which were largely reflected in the G20 reform agenda.  The World Economic 
Forum had ranked Canada's banking system as the soundest in the world for two consecutive years.  Even the IMF commented that Canada's financial se ctor showed "remarkable stability amid the global 
turbulence, thanks in good part to strong supervisi on and regulation."  Ten years ago, a ranking of the 
top 50 global financial institutions  would not have included a singl e Canadian bank;  today five 
Canadian banks were on that list.  Canada was the last G7 nation to enter into recession, with a decline in real GDP that was virtua lly the smallest of all G7 countries.  Although the crisis had an 
impact on liquidity, no major Canadian financial institutions had failed a nd none required bailouts 
from the government.  
60. He then referred to the G20 financial sector reform agenda, which was guided by a four-pillar 
approach.  The first pillar was a strong regulatory framework, founded on the strengthening of capital S/FIN/M/64 
Page 10  
 
  and liquidity standards with a lim it on leverage, improved fi nancial market infrastructure, and a single 
set of high-quality global accounting standards.  Th e second pillar of financial stability was stronger 
oversight and supervision.  The third was to addr ess the problems raised by systemically-important 
institutions, and to work cooperatively to strengthe n cross-border crisis management.  The fourth 
pillar was based on a  mutual commitment to foster  a "race to the top", wherein encouragement from 
peers through regular review and evaluation was exp ected to motivate all countries and jurisdictions 
to raise their level of adherence to internationa l financial standards.  Looking forward to the 
November Leaders Summit in Seoul, the G20 must make every effort to finalize new capital and 
liquidity rules. 
61. He added that Canada had been at the forefront  in the G20 fight against trade protectionism.  
Even at the peak of the recession, Canada responde d not through trade restrictions, but by unilaterally 
eliminating all remaining tariffs on manufacturing inputs and machinery and equipment – more than 1,500 tariffs in all.  This made Canada the fi rst tariff-free zone for manufacturers in the G20.  
62. The representative of Argentina
 said that this dedicated discussion constituted a very valuable 
contribution to the debates taking place not only in this Committee but also in other WTO bodies.  His 
country, together with Ecuador, India and South Africa, had been one of the demandeurs of the 
discussion at the WTO on the effects of the financ ial crisis and of measures adopted by Members on 
trade.  The objective of that proposal was to improve Members' understanding of a number of problems arising with the crisis.  One of those little understood problems was the issue of subsidies 
for trade in services and, in particular, for financial services.  
63. According to a recent publication authored by Pietro Poretti, and entitled "The Regulation of 
Subsidies within the General Agreement on Trade in Services at the WTO" , available information 
showed that there was a concentration of subsid ies in certain sectors, including audiovisual, air 
transport, maritime, rail, tourism, and financial services, in particular banking services.  Generally 
speaking, according to this study, there was a corr elation between the level of subsidies and the 
economic development of the Member concerned.  Developing countries appeared as providing less 
subsidies (as a proportion of their national incom es) than developed countries.  This had been 
corroborated by the replies to the exchange of inform ation exercise that took place in 1997, and by the 
information gathered from WTO Trade Policy Review s (TPRs).  According to information contained 
in TPRs between 1995 and 2004, the Banking and Other Financial Services sector was the second 
most heavily subsidized sector among Members.  Pore tti's study suggested that in general, subsidies in 
financial services took the form of assistance  to off-shore banking sectors, and rescue and 
restructuring of troubled financia l institutions.  According to this study, the financial services sector 
also received export subsidies, for example thr ough tax incentives on income derived by domestic 
institutions' off-shore inte rnational operations.   
64. In 2008, in the face of the financial crisis, a number of Members announced important rescue 
packages in order to bail out financial institutions, banks  in particular.  With this in mind, he referred 
to three studies that show empirical evidence on th e distortions introduced by some of the measures 
linked to these bailout packages.  One of those studies was authored by Michael King, from the BIS, 
who analyzed the spreads of the credit default sw aps (CDS) faced by banks that benefited from and 
banks that did not benefit from any form of rescue.  He explained that a CDS was a contract between 
a protection buyer (i.e. the bank issuing a bond) who made periodic payments to the protection seller, 
and in return would receive a payoff if an underl ying reference bond underwent a credit event.  CDS 
contracts were analogous to insurance, because th e buyer paid a premium and received a sum of 
money should the specified credit events occurred.  King's analysis showed that the value of CDS-
related premiums fell in all countries having adopted rescue packages.  In other words, the prices that 
banks had to pay for a CDS was lower after the a nnouncement of the bailout measures.  According to 
King, the announcements of these r escue packages resulted in CDS spreads falling by 12 per cent in 
five of the six countries in the sample.  This m ovement suggested that the announcements of these  S/FIN/M/64 
 Page 11 
 
 
  measures were very important for bank creditors .  According to King, creditors perceived 
governments' support to financial ins titutions as reducing the default risk in all banks.  Naturally, this 
change in creditors' perceptions, and the fall in the co st of financing, implied direct benefits for banks, 
which would not have occurred in normal market conditions.  
65. Secondly, studies carried out by the IMF confirmed King's analysis.  In its Global Financial 
Stability Report of 2009, the IMF showed that in most  cases, the announcements of capital injections 
had a significant impact on average CDS spreads,  which could be considered as constituting a good 
indicator of the effectiveness of these measures in  reducing risk.  The announcements of governments' 
debt guarantees reduced the credit risk faced by rescu ed financial institutions significantly.  In that 
report, the IMF acknowledged that, although in tim es of crisis debt guarantees helped preserve 
financial stability by supporting liquidity, they we re very distorting, given that the government 
assumed credit risk instead of the debt issuer, ther eby reducing the market incentive to control such 
risk.  This was corroborated by the IMF and OECD presentations earlier during the meeting.  According to the IMF, other measures, such as reca pitalization schemes, also affected conditions of 
competition since they had an impact on the market prices of financial instruments, especially when 
governments owned a large proportion of the bank's capital because the public might assume that the 
public sector would guarantee the recapitalized bank's liabilities.  As proof of the degree of distortion 
created by the public sector assuming the private sect or's risk, the IMF calculated the difference in 
risk premium between guaranteed and non-guaranteed  debt, for a sample of banks.  In the second 
quarter of 2009, the average risk premium was 350 basis points lower for guaranteed debt than for 
non-guaranteed debt.  The IMF representative had made  reference earlier today to the impact of these 
government guarantees on CDS spreads in Ireland.  
66. Another study from the BIS, authored by Panetta and others , reached the same conclusion:  
Government interventions during the crisis had b een effective in reducing banks' default risk.  
Generally speaking, the announcement of these larg e rescue packages was followed by a fall in CDS 
spreads, with that fall being more significant in those countries that used the most resources.  In 
addition, the study by Poretti referred to before in dicated, through concrete examples, that financial 
rescue packages might also discrimin ate against foreign suppliers.  
67. In conclusion, the representative of Argentina said that all this evidence pointed to the 
distorting impact of government intervention.  As concluded by Panetta et. al, weak banks established 
economically strong countries could have access to cheaper financing than strong banks from weak countries.  According to these authors, this pricing of  risk was not what would be expected in a well 
structured and efficient market.  These studies provi ded evidence that the r escue packages granted by 
some Members to some financial institutions had dist orted conditions of competition in those markets.  
Such measures, adopted only by governments wi th the necessary financial capacity, had clearly 
benefited a number of institutions in terms of the costs of their access to financing, thereby reducing 
these institutions' operational costs.  The cost adva ntages had translated into artificially obtained 
competitive advantage.  In his view, this evidence should be taken into account in discussions held in 
Committee and in other WTO bodies.   
68. The representative of Australia
 said that increased financial sector regulation was to be 
expected as one of the outcomes of the global fina ncial crisis.  However, poorly designed regulation 
could obstruct trade and prevent the financial sect or from supporting economic growth.  In contrast, 
well designed and appropriate regulation could enha nce market confidence and promote trade.  A 
second condition to reap the benefits of trade in financial services was to  have internationally 
consistent regulation.  The G20 played an im portant leadership role in that regard.   
69. Despite the severity of the global financial cris is, Australia’s financial institutions remained 
sound.  In fact, Australian banks were among the least affected by the crisis.  Importantly, the Australian government did not have to  bail out any financial institutions due to the crisis.  That said, S/FIN/M/64 
Page 12  
 
  the Australian economy was not immune.  Like almost every country, Australia had been  affected by 
the disruption to global financial markets and the global economic slowdown, and had used a mix of 
macroeconomic responses, including  internationally coordinated fiscal stimulus and monetary 
loosening, to support the economy.  A liberal fore ign investment policy allowed FDI and portfolio 
investment to replace the role of debt in financing Australia's current account deficit.   
70. Like other capital importing nations, Australia was affected by the global rationing of credit 
during the crisis and the adoption of government guarantees across a number of countries.  That was 
why the Australian government had acted to mainta in a level playing field for Australian banks.  
However, to ensure that Australian banks were not given an unfair competitive advantage by these 
actions, the government charged them a fee to access th e guarantee.  As a result, rather than providing 
a subsidy to the banking sector, the Australian gov ernment expected to raise around $6 billion in 
revenue.  He noted that foreign bank subsidiari es were allowed to access the guarantee on exactly the 
same terms as Australian banks, and that access w as also being quickly extended to foreign bank 
branches.  Once global markets started to stabilise earlier this year, the Australian government acted 
quickly to withdraw its guarantee.  He added that his government shared the concerns of other capital 
importing countries that unilateral and regional res ponses to the global financial crisis that went 
beyond, or deviated from, the reforms agreed by the G20, the FSB, and the BCBS did not inadvertently create impediments to international trade in financial services.  
71. The representative of India
 said that the experts who had taken part in the dedicated 
discussion earlier had pointed out the huge size of  rescue packages in some countries, and how 
government guarantees had transferred risks from th e banks to the Sovere ign, thus changing 
conditions of competition in favour of the weaker banks.  Additionally, if the guarantees were not 
withdrawn, distortions could be perpetuated.  Di stortions of conditions of competition had, in his 
view, an effect on trade in financial services.  This  was certainly not conducive to a level playing field 
and had an adverse impact on the supply of financ ial services by developing countries' suppliers.  
These facts supported the view put forward by India, among others, that the Committee should further 
examine the effect of these measures on trade in fi nancial services in a more comprehensive manner, 
in order to enhance Members' understanding of the cris is and of its impact on fi nancial services trade.  
72. One of the lessons that could be drawn from th e presentations by international organizations 
during the meeting was that developing countries needed to be cautious when looking at the liberalisation and expansion of financial services, taking into consideration local conditions, 
development needs and priorities.  Calibrated openi ng with effective regulation was probably the way 
to go, as developing countries did not have enough resources to launch large rescue pack ages in case 
of a crisis.  
73. Foreign banks had played an important role in the Indian financial sector.  He said that there 
were currently 34 foreign banks operating in India as  branches.  Their balance sheet assets, as of 31 
March 2010 accounted for about 7.65 per cent of the total assets of commercial banks in India, down 
from 9.03 per cent in the previous year.  In case o ff-balance sheets assets were included, the share was 
45.94 per cent, down from 50.5 per cent in the previous  year.  However, after credit conversion of off-
balance sheet items that share was 11.23 per cent, down from 13.77 per cent in the previous year, as 
of end-March 2010.  Fore ign banks saw a decline in their share of assets from the previous year 
because of contraction in lending in In dia during the global financial crisis. 
74. The crisis had also shown that in host-countries where  foreign banks had a large presence and 
had also acquired large market shares at the expen se of domestic banks in the boom years, when the 
home-countries of those institutions were afflicted, t hose foreign banks had tend ed to substantially cut 
down their operations in – or withdraw from – the host-country.  The Indian experience was no 
exception as the foreign banks had withdrawn substa ntially from the credit markets in India to the  S/FIN/M/64 
 Page 13 
 
 
  extent that year-on-year growth of credit was -7.1  per cent as of 3 July 2009, and -15.9 per cent as of 
9 October 2009.  
75. In India, foreign banks not only withdrew from the credit market but also hoarded liquidity 
with their head offices.  The events had demonstr ated that when a banking group got into difficulty, 
liquidity which was believed to be available to th e whole group could be "hoarded" by the parent or, 
in some cases, seized by local authorities intervening to protect their own depositors.  This was often 
exacerbated after the collapse of the group as liquid asset s were retained within the parent either by 
the management of that firm or the actions of lo cal authorities, which might be contrary to group 
assurances or even cross-border agreements and inte rnational obligations.  Therefore, there was an 
increasing realisation that there should be a calib rated approach in openi ng up the domestic banking 
system to foreign banks.  This might also call for so me kind of limitation on the size of operations of 
foreign banks in terms of mark et share at the macro level. 
76. In contrast to the global scenario, India had by  and large been spared of the global financial 
contagion.  Even in the midst of the crisis, I ndia's financial sector remained safe and sound and 
financial markets continued to func tion normally.  In his view, there we re a variety of reasons for this: 
In India, the credit-derivatives market was in an em bryonic stage;  the originate-and-distribute model 
in India was not comparable to the ones prevailing in  advanced markets;  there were restrictions to 
investments by residents in such products issued abroad;  and regulatory guidelines on securitisation 
did not permit immediate profit recognition.  Fina ncial stability in India ha d been achieved through 
perseverance of prudential policies which preven ted institutions from excessive risk-taking, and 
financial markets from becoming extremely volatile and turbulent.   
77. Though the Indian banking system remained stable during the crisis, there had been an 
adverse impact on the Indian economy.  After cl ocking an average of 9.4 per cent during three 
successive years from 2005-06 to 2007-08, real GDP gr owth slowed down to 6.7 per cent in 2008-09.  
Industrial production grew by 2.6 per cent as compared  to 7.4 per cent in the previous year.  In the 
half year ended March 2009, imports fell by 12.2 pe r cent and exports fell by 20 per cent.  The trade 
deficit widened from US$88.5 billion in 2007-08 to US$119.1 billion in 2008-09.  Net capital inflows 
at US$ 9.1 billion (0.8 per cent of GDP) were much lower in 2008-09 as compared with US$ 108.0 
billion (9.2 per cent of GDP) during the previous year, mainly due to net outflows of portfolio investment, banking capital and short-term trade credit.  
78. He further explained that the expansion of  trade in services had included not only cross-
border trade but also foreign direct investment.  IMF research on the current crisis showed that larger 
stocks of debt liabilities and FDI in the financ ial sector were associated with worse growth 
slowdowns.  Countries with larger stocks of debt lia bilities or financial sector FDI fared worse in the 
current crisis, whereas those with larger stocks of  non-financial FDI fared better.  He said that it was 
difficult to fully realize the benefits of liberali zation of trade in financial services under the GATS  
without free cross-border movement of capital.  The GATS therefore contained certain provisions 
aimed at ensuring that a country did not apply r estrictions on payments and transfers that would 
undermine its commitments on market access and national treatment.  In his view, those GATS 
requirements sit oddly with the recent IMF findings on FDI in the financial services sector.  
79. The representative of China
 spoke, first, about the relati onship between financial crisis, 
financial liberalization and pruden tial regulation.  He said that fi nancial liberalization was very 
important to deepen finance, improve financial ser vices and enhance financial efficiency.  However, 
improper financial liberalization could cause serious  damages to the financial sector and the whole 
economy.  The financial crisis showed that "ove r-liberalization", innovation, and a neglect of 
prudential regulation, led to market failure.  Incen tive schemes in many financial firms encouraged 
excess risk-taking.  Excessive leverage had led to  speculation and caused a catastrophe.  Financial 
innovation had torn apart the firewall between  the banking sector and the capital market and S/FIN/M/64 
Page 14  
 
  facilitated risk contagion across the board.  The fina ncial sector and the global economy in general 
had suffered substantial losses.  The crisis s hould prompt countries to deeply reflect on the 
relationship between liberalization,  development, and regulation.  Financial liberalization must be 
gradual and progressive.  The pace and the extent of  an economy's financial liberalization must be 
suited to the economy's history and social backgr ound.  Although China's banking industry incurred 
losses in the wake of the crisis, because of li mited exposure to foreign assets it had withstood the 
global financial crisis.  In his view, this proved that China's emphasis on gradual liberalization and 
prudential regulation was correct. 
80. Second, he referred to the measures taken by  the Chinese banking regulators to address the 
global financial crisis.  In the past three year s, Chinese banking regulators had adopted a number of 
countercyclical regulatory measures to offset the impact of the financial crisis on the banking 
industry, to mitigate relevant financial risks, an d lend support to reverse the economic slowdown.  
Measures to protect the domestic banking sector from the global financial crisis included active cross-
border supervisory cooperation and information exchange, developi ng mechanism to prevent cross-
border contagion, enhancing the monitoring and assess ment of banking institutions' overseas assets.  
Measures to mitigate the uncertainty faced by th e banking sector included e nhancing supervision of 
large and systemically important institutions, as well as updating macro-prudential supervision.  
81. He then spkoke about internationa l financial reform.  In light of the deficiencies in financial 
supervision made apparent by the cr isis, it was important that the refo rm of the international financial 
system be informed by the following principles.  Firstly, supervisory philosophy and approaches should be adapted to each country's characteristics.   Secondly, in a phase of radically changing 
financial markets, regulators should adhere to simp le and clear-cut prudential policies and instruments 
focusing on traditional indicators, such as corpor ate governance structure, capital adequacy, large 
exposure, liquidity, non-performing assets, and inform ation disclosure.  Thirdly, in light of the 
complexity of banking business, rules-based supervision should be complemented by principles-based supervision.  Fourthly, regulators should adopt a system-wide approach to banking supervision, 
complementing micro-prudential with macro-prudentia l supervision.  Fifthly, regulatory coverage 
should be broader, tackling all potential risks and elimination supervisory loopholes.  Finally, cross-
border and cross-sector risk contagion should be prevented, by conducting stringent regulation and 
supervision of cross-border risks, and by estab lishing firewalls between the banking, securities, 
insurance, and real estate markets.  
82. Summing up, he said that the role of the financ ial sector was to promote economic growth and 
development, but not excessive risk-taking and prof it-making.  The financial crisis had shown the 
dangers of excessive and premature liberalization of the financial sector.  Market-driven liberalization 
must be balanced with the legitimate concerns of financial stability and adequate regulation.  
83. The representative of Hong Kong, China
 talked about the experience of his government in 
responding to the financial crisis, and also responded to some of the discussion topics set out in 
paragraph 2(b) of the Secretariat Informal Note for today’s meeting.  In his view, a liberal financial 
market and rigorous regulatory oversight were indeed  complementary.  When the financial crisis had 
broken out, in response to the uncertainties surrounding the global financial market, the government had requested Hong Kong, China's regulatory agenci es to report market movements and related issues 
on a regular and frequent basis, and ensure that ma rket transactions were operating smoothly and in an 
orderly manner.  Regulators also maintained close dialogue with their counterparts in other economies 
on matters pertinent to global financial stability an d regulation.  Timely a nd coordinated responses 
were the key to confront the crisis.  
84. Measures taken during the financial crisis had focused on a limited number of areas.  Firstly, 
measures were taken to improve liquidity provision  in order to help maintain the stability and 
confidence in the monetary and banking sectors, a nd facilitate banks to bette r perform their function  S/FIN/M/64 
 Page 15 
 
 
  of financial intermediation.  Secondly, a Conti ngent Bank Capital Facility had been established to 
provide contingent capital provision.  The provisi on served as additional capital facility available to 
all locally-incorporated licensed banks  in case of liquidity needs.  No bank resorted to this facility, 
though.  Thirdly, a full deposit guarantee had been established so as to restore confidence in the 
banking sector.  Fourthly, the government had take n measures to stimulate economic growth, for 
example by speeding up infrastructure projects and other public sector projects to stimulate the 
economy and create additional jobs, and by helpi ng small- and medium-sized enterprises through a 
loan guarantee scheme.  With regard to all these measu res, all eligible institutions were treated in a 
non-discriminatory manner.  Lastly, on the regulatory front, the capital and liquidity regimes had been 
improved, by adopting the international b est practices on risk management of banks. 
85. He then turned to some of the discussion topics highlighted in the Informal Note.  Regarding 
the cross-border supply of financial services through modes 1 and 2, and sales and purchases of financial services through mode 3, he said that th e effects of the financial crisis on cross-border 
operations by authorized institutions was small.  Between 2008 and 2009, international lending, and 
cross-border supply of insurance services had fallen by 5.6 and 4 per cent, respectively.  The number 
of authorized foreign institutions incorporated in Hong Kong, China had remained the same in 2008 
and 2009, reflecting a minimal effect of the crisis on mode 3.  
86. Regarding the effects of the financial cris is on the operations of foreign and domestic 
financial service suppliers, he said that during the fina ncial crisis, intermediaries in the securities and 
futures sectors had been subjected to closer surveillance.  In addition, the impact of the financial crisis 
had also led to a fundamental shift of consumer  sentiments from return maximization to capital 
preservation.  As a result, the sale of insurance products in Hong Kong, China had been switching 
from investment-linked insurance products to more  traditional – protection-oriented – products.  
87. Lastly, with regard to the effects of governmen ts’ measures in support of the financial sector 
on trade in financial services, he said that foll owing the liquidity measures taken in 2008, the 
domestic interbank market largely returned to norma l functioning in 2009, w ith interbank interest 
rates returning to normal levels.  Confidence in th e local banking system was greatly strengthened 
while access to bank finance by corporate, including  small- and medium-sized enterprises, had been 
largely restored.  This underlined, in his view, th e primary importance of ha ving a vigorous financial 
institution in the first place.   
88. The representative of the European Union
 said that the financial crisis had caused significant 
global economic damage with a severe impact on the cost  and availability of credit.  As at the end of 
2009, banks and insurance companies had written off more than one trillion euros and the full scale of 
the loss was still unknown.  Since August 2008, falls in global stock markets alone had resulted in 
losses in the value of the listed of  more than 16 trillion – equivalent  to about 1.5 times the European 
Union GDP.  The breakdown of trust and the crisis of confidence in autumn 2008 had practically shut 
down interbank money markets, thus creating a larg e scale liquidity crisis which was still weighing on 
the EU financial markets and beyond.  The complexi ty of a number of financial instruments and the 
intrinsic vulnerability of the u nderlying assets explained why proble ms in the relatively small  
subprime market brought the global financial system to the verge of full-scale dislocation.   
89. He said that it was not possible, at the moment, to  isolate the effects of the crisis on trade in 
financial services.  EU data showed that cross-bor der trade was down to 2006 levels, but it was not 
yet clear whether the situation would stabilize or whethe r trade would continue to fall.  It was not sure 
that the downturn in trade was indeed due to the cris is in the financial services sector itself or, rather, 
a by-product of the contraction in trade in goods.  This was an analysis that Members would have to 
do in the future, once sufficient data was available.  Similarly, it was not possible to know at this stage 
what  the impact of the crisis was on the different modes of supply.  S/FIN/M/64 
Page 16  
 
  90. The financial services sector in general appear ed to be stabilizing.  The determined and 
concerted efforts of the international community had been essential in that re gard.  Measures had been 
taken across the world to ensure that the financial se rvices sector continued to function, thus avoiding 
a systemic collapse with catastrophic affects on the global economy.  In accordance with the commitments taken at the G20 Summits in Pittsbur gh and London, the EU had taken a number of 
measures ranging from recapitalization, to guarantees,  to impaired asset management.  According to a 
specific internal structure and a unique State ai d regulation, any support measures taken by EU 
Members States needed to satisfy  a number of criteria.  They had to be applied in a non-
discriminatory manner, assistance could only be pr ovided after the beneficiaries tabled a long term 
viability or restructuring plan, the burden must be  shared by the beneficiaries, measures must be 
tailored to ensure the least possible effects on comp etition, and they must be made public and notified 
to the WTO consistently.  All steps to reframi ng the criteria and allowing the support measures had 
been published in various communications by the Eu ropean Commission.  Exit strategies had been 
formulated and most of these measures were already ended.   
91. He further explained that the EU was undergoi ng a period of substantive reform in the 
financial services sector, with initiatives ranging from extending regulation to previously non-
regulated entities (such as hedge funds or OTC derivativ es) to capital requirements.  The fact that the 
EU could undertake such large scale reform s while honouring its commitments under the GATS 
exemplified clearly, in his view, the flexibility of the GATS framework and the principle that 
allowing market access does not mean deregulation.  The EU fully agreed with  the conclusion of the 
WTO Secretariat in the Background Note on Fina ncial Services that commitments under the GATS 
had not caused the financial crisis.  It could also be  said that those commitments had not acted as an 
impediment to reacting to the crisis and safeguard ing the financial system.  He concluded that the 
globalized nature of the financial services sectors, as underlined in the previous presentations, meant 
that Members must act in concert when reform ing the regulatory and supervisory system, thus 
enhancing cooperation, ensuring a level playi ng field and minimizing regulatory arbitrage. 
92. The representative of Brazil
 said that Brazil was one of the last major economies to suffer the 
effects of the crisis and one of first to recover from it.  This performance was the result not only of 
measures taken after the first signs of the financ ial turmoil had appeared, but also, and mostly, of 
governmental policies implemented in the last ei ght years which prepared the Brazilian economy for 
the challenges that arose in 2008 and 2009.  He c onsidered that the success of these policies could be 
measured, inter alia , by an estimated GDP growth rate in 2010 of 6 per cent, as opposed to a 
"technical" recession in the last quarter of 2008 and the first quarter of 2009. 
93. The Brazilian government had responded to the world crisis with a sequence of 
unprecedented expansionary actions, including monetary and fiscal count er-cyclical measures.  Sound 
regulation was also key.  None of the measures had been directed towards restricting or discriminating foreign investment;  neither had they relied on any fo rm of trade protectionism.  Similarly to what had 
happened in most countries, the immediate impact of the 2008 crash had been a credit crunch in 
Brazil.  The reduction in foreign credit lines to Brazilian banks and firms increased the liquidity constraints on domestic agents, and the sharp depreci ation of the "real" had generated large immediate 
financial losses to some of Brazil’s main exporters. 
94. The immediate responses of the Brazilian governme nt to the credit crunch had been directed 
to providing liquidity both in foreign and domestic  currencies.  Measures had been taken on both the 
international and the domestic sides.  On the intern ational side, the capital outflows and the abrupt and 
substantial reduction in foreign credit lines to Brazil ha d resulted in a sharp depreciation of the "real".  
In the last quarter of 2008, US$22 billion had left  the economy and the "real" had fallen by 43 per 
cent against the US dollar.  To fight depreciation a nd mitigate the liquidity constraint in the domestic 
foreign exchange-market, the Brazilian Central Ba nk had used its international reserves to sell 
US$14.5 billion in the spot market and offered temporary credit facilities to Brazilian exporters.   S/FIN/M/64 
 Page 17 
 
 
  These two actions had been complemented with swap  operations, in which th e Central Bank had sold 
the foreign currency and bought domestic currency to alleviate the speculative pressures.  These 
combined actions could not offset the massive movement of private capital flows during the worst period of the crisis, but they had been successful in maintaining a minimum level of liquidity in 
foreign exchange for Brazilian firms.  During the wors t period of the crisis the total foreign-exchange 
interventions of the Central Bank had amounted to US$24.4 billion in short-term finance to Brazilian 
exporters, and US$33 billion in swap  operations.  Such an strategy had been possible only because 
Brazil had accumulated US$210 billion in international reserves before the crisis and, as the situation 
improved and foreign capital returned to the econom y, all temporary foreign- exchange operations had 
been terminated quickly in the second half of 2009. 
95. On the domestic side, the Central Bank had redu ced the banks' reserve requirements, injecting 
approximately the equivalent of 3.3 per cent of GDP in the money market at the end of 2008.  Given 
the large reserve requirements imposed by the Centra l Bank before the crisis, a huge pool of liquidity 
had been available to be injected in the economy through such an action, even though banks had refrained from lending in a climate of high economic un certainty.  The main effect of the reduction in 
reserve requirements was to safeguard the Brazilia n interbank market from contagion by the world 
crisis.  As a first step, most of the recently freed  reserves were channelled to the large Brazilian banks, 
specially the Brazilian public commercial banks, whic h had most of the deposits and were backed by 
the federal government.  To neutralize this flight to quality and to spread the liquidity throughout the 
banking system, the Central Bank had complemented  the reduction in reserve requirements with 
temporary incentives for large banks to lend to smal l and medium banks, as well as with a special and 
temporary insurance to the deposits in small and medium banks.  The two actions worked well and 
Brazil was capable to go through the worst period of the credit crunch without facing bankruptcies in the financial sector.  
96. The reduction in reserve requirements had avoide d the worsening of the financial crisis, but 
had not been sufficient to increase the supply of credit to Brazilian firms and households.  As a 
consequence, interest-rate spreads rose.  At that time, because of legal restrictions, the Central Bank 
had constraints as to the types and amounts of priv ate bonds it could purchase.  Therefore, the Central 
Bank could not act as proper lender of last resort duri ng the worst period of the crisis.  The solution to 
this problem had come through the public banks, such as the National Development Bank (BNDES), 
which had acted as a "penultimate" lender of last r esort during the critical phase of the credit crunch. 
97. In 2009, the Brazilian treasury had also helped  Brazil's two largest public commercial banks, 
Banco do Brasil and Caixa Econômica Federal , to set up credit facilities to sectors in difficulty, 
especially agriculture and residential investment.  The Brazilian counter-cyclical policy also included 
a substantial cut in the country's base interest ra te, but this had come only after carefully assessing 
inflationary and exchange-rate is sues, which had been overshadowed by a generalized concern about 
decreasing growth rates. 
98. He concluded by saying that the Brazilian experience had demonstrated that "heavy" 
prudential regulation was useful not only to prevent crises, but also to fight their effects.  More 
specifically, the low leverage and the high reserve requirements implemented by the Central Bank had 
proven to be extremely useful during the credit cr unch.  The low leverage had implied that there 
would not be a serious problem of solvency in the banking system.  Owing to high reserve requirements a huge pool of liquidity could be quickly injected in the system without legislative or 
legal complications.  The formal registration of all derivatives contracts done in Brazil had also 
helped the government to quickly address the main  financial vulnerabilities of some firms during the 
period of intense exchange-rate depreciation.
 
99. The representative of Korea  said that his country had expe rienced a major financial crisis 
during the late 90's, which had prompted major struct ural changes in the financial regulatory system.  S/FIN/M/64 
Page 18  
 
  As a result, Korea had overcome the crisis earlier th an expected.  That expe rience also helped Korea 
withstand the current crisis.  Unfortunately, he  saw signs of countries moving towards greater 
protectionism and against liberalization.  He agreed  that the financial crisis should neither interfere 
with, nor be used as an excuse against, liberalization.   It was nevertheless necessary for government to 
implement various bailout programs in order to stre ngthen and revitalise their economies.  In his view, 
Korea's experience showed that it was possi ble to recover from the crisis while pursuing 
liberalization.  While going through th e Asian financial crisis in the la te 90s, Korea had not closed its 
markets and not promoted protectionism.  Rath er, Korea had kept its commitment to market 
liberalization.  By opening up, Korea had been ab le to attract foreign investments, advanced 
techniques and know-how, and expertise from leading global financial institutions.  He concluded by 
saying that trade and investment liberalization mu st complement the G20 efforts to build a more 
resilient financial system and to recover from the financial crisis. 
100. The representative of Ecuador
 said that the response to the current financial crisis had 
depended to a great extent on the resources available to each country.  In spite of not being at all 
responsible for generating this cr isis, developing countries had to face the consequences, which had 
been very damaging for their economies.  In th e case of Ecuador, the crisis had led to a severe 
imbalance in its bala nce of payments, putting its monetary syst em in jeopardy.  Unlike countries with 
significant financial resources enabling them to take other type of measures, Ecuador had been forced 
to take trade restricting measures in order to saf eguard its balance of payments.  These measures had 
come under close scrutiny by some Members.  He said that it was a systemic interest that had 
motivated Ecuador to discuss other Members' measures in response to the financial crisis;  measures 
that were directly linked to the work of this Co mmittee.  It was necessary to have more information 
about these support packages in order to understand th eir scope and their effects on financial services 
trade.  
101. As indicated by the BIS representative earlier, support packag es to the banking sectors in 11 
countries had amounted to €5 trillion as of end-2009.   Without prejudice to the objectives pursued, it 
was clear in his view that these programmes had le d to distortions in the conditions of competition 
among financial institutions.  The representative of Argentina had pointed out very clearly how these 
distortions had been brought about.  Such evidence must be taken into account in the discussions and 
the negotiations taking place in this and other WTO Committees.  Drawing Members' attention to the 
importance of appropriate and effective regula tion, something emphasized by the previous 
presentations by international orga nizations, he reiterated his conc ern about the potential limitations 
that some commitments in the GATS might impose on the regulatory capacity of countries.  In his 
view, such constraints should be further considered by Members. 
102. The representative of Japan  discussed first his government's response to the crisis.  At the 
onset of the financial crisis, Japanese financial in stitutions had been in a relatively good condition, 
compared to financial institutions in the US and Eu rope.  Their exposure to securitized products had 
been quite low, at about 10 per cent according to  government's estimates.  However, Japan had not 
been immune to the crisis.  As the global financial market turmoil intensified, particularly after the 
crash of Lehman Brothers, the situation in Japan had deteriorated sharply.  The real economy had 
experienced negative growth rates, and stock prices had declined.  That had had a negative impact  on 
the balance sheets and profitability of Japanese financ ial institutions.  As a result, most of Japanese 
banks had reported losses in the third quarter of 2008 and the first quarter of 2009.  Fortunately, major 
banks had then posted profits in the second quarter of 2009.  In order to maintain financial institutions 
and facilitate credit to SMEs, the Japanese governme nt had injected capital in regional financial 
institutions, and modified credit conditions to SM Es.  In addition, his country had implemented 
regulatory reforms in several areas, including de rivative markets, hedge funds, and compensation 
practices, in accordance with recommendations by the G20 and FSB.   S/FIN/M/64 
 Page 19 
 
 
  103. He then discussed five lessons that could be drawn from the Japan's experience.  First, prompt 
and accurate recognition of losses was essential;  sec ond, toxic assets needed to be taken off the 
balance sheet quickly;  third, undercapitalization of  financial firms had to be addressed, if necessary 
by injecting public funds as capital;  four, exceptiona l measures, including full guarantee of all bank 
deposits and temporary nationalizati on of troubled banks, could be useful in times of serious crisis;  
and, lastly, short-term measures to contain the adve rse effect of the on-going crisis and reorganizing 
of the regulatory framework in the medium to longe r term needed to be im plemented simultaneously 
and in a balanced manner.  It was very important to  strike an appropriate ba lance between these policy 
strands and to ensure that the measures taken were  consistent with liberalization commitments under 
the GATS. 
104. He finally made some general remarks on today' s discussion.  The main causes of the current 
crisis were, in his view, excessive risk-taking by ma rket participants, coupled with a weak supervisory 
framework which allowed such risk-taking.  At  the same time, no convincing evidence had been 
produced that liberalization commitments of fi nancial services trade under the GATS was a direct 
cause of the crisis.  Although the crisis had ma de it necessary to overhaul prudential regulation in 
order to prevent future crises, Members should not  backtrack on financial services liberalization or 
stop the liberalization process.  Strengthening the regulatory framework and progressively liberalizing 
the financial sector should go in tandem.  In partic ular, the liberalization of trade under mode 3 could 
benefit institution- and capacity-building in the fi nancial market.  He concluded by saying that 
discussions and information exchange with other inte rnational organizations was very useful for the 
WTO and should be encouraged. 
105. The representative of Chinese Taipei  said that financial services played an important role in 
economic development and interna tional trade.  The stability, efficiency, and the safety of the 
financial sector contributed to healthy and smoot h development of trade and the overall economy.  
Before the financial cris is had broken out, derivative products had been very popular, and had spread 
around the world.  Some had criticized globalization in general and these products in particular for 
causing the crisis.  However, from his viewpoint, neither globalization nor the spread of these 
derivative products should be blamed.  The only way of  preventing a crisis of such magnitude in the 
future was to strengthen financial regulation, av oiding trade barriers, and not hindering financial 
innovation.  The recent G20 Summit had addressed some key issues related to strengthening 
regulatory approaches, enhancing consumer prot ection and improving market transparency, among 
others. 
106. The impact of this global crisis on Chinese Taip ei's domestic financial institutions had been 
relatively limited compared to other economies.  In  addition, in line with G20 recommendations, his 
government had taken measures such as improving best  practices for financia l institutions, promoting 
trading efficiency and transparency in the over-t he-counter derivatives market, requesting banks and 
financial holding companies to establish a committee on payment structure, and implementing rules to 
enhance corporate governance, internal controls and internal audits.  Chinese Taipei looked forward to 
enhancing supervisory cooperation among Members. 
107. The representative of the United States  said that his government had implemented four types 
of policies to improve the stability of the financ ial system.  The first was the Emergency Economic 
Stabilization Act, which provided US$700 billion in budgetary authority to undertake programmes in 
support of the financial sector.  These programmes ha d been collectively and commonly referred to as 
the Troubled Asset Relief Programme (TARP).  Of that US$700 billion, 490 billion had been 
committed to specific institutions, of which approxi mately 380 billion had been paid out.  Of these, 
about 200 billion remained outstanding, and the fi nal costs of all the TARP programmes had been 
estimated at US$100 billion dollars.  The largest si ngle TARP programme was the Capital Purchase 
Programme (CPP), which had been programmed at a bout US$205 billion.  Unde r that programme, the 
US Treasury had made equity investments in banks in exchange for non-voting preferred interests and S/FIN/M/64 
Page 20  
 
  warrants.  The maximum amount of the capital eligible for purchase under the CPP was the lesser of 3 
per cent of total risk rated assets or US$25 billion.  Any bank that had a US bank supervisor as its 
consolidated comprehensive supervisor was eligible. 
108. The second type of policy consisted of temporary liquidity guarantees.  The first of these was 
the traditional deposit insurance which had been  increased from US$100,000 to US$250,000 to the 
depositor.  The second was the Transaction Account Guarantee Programme (TAGP), which fully 
guaranteed non-interest bearing transaction depos it accounts above US$250,000.  The total amount of 
guarantees under the TAGP, which would expire at th e end of 2010, was US$279 billion.  The third 
guarantee programme was the Debt Guarantee Progr amme (DGP), which guaranteed eligible senior 
unsecured debt.  At the end of the first quarter of  this year, US$305 billion in guaranteed debts had 
been outstanding.  New issuance under the DGP had ended on 31 October 2009.  Any depository 
institutions in the US was eligib le for these guarantee programmes. 
109. The third avenue of support consisted of central  bank liquidity support.  The Federal Reserve 
had provided well over US$1 trillion dollars in liquidity  support both directly to the markets and via 
programmes such as the Asset-Backed Securities Loan  Facility (TALF), the Primary Dealer Credit 
Facility, and Liquidity Swaps with Foreign Central Banks.  
110. The fourth type of policy adopted by the US was the Supervisory Capital Assessment 
Program (SCAP), which consisted of a comprehensive set of stress tests for the 19 largest bank holding companies.  These 19 firms collectively held  two-thirds of the assets and more than one-half 
of the loans in the US banking system.  In his view , this programme had been the turning point of the 
financial crisis, as it restored market confidence. 
111. In early 2009, the US government had estimated that the costs of TARP and the additional 
financial stabilization programmes could exceed US $500 billion or 3.5 per cent of GDP.  However, 
the direct costs of all financial interventions were  now expected to represent less than 1 per cent of 
GDP, which was less than the General Accounting Offi ce (GAO) estimate of the cost of resolving the 
1980 Savings & Loans (S&L) crisis.  
112. Talking about government owners hip of financial institutions, he said that the US currently 
owned approximately 80 per cent of AIG, 27 per cent of Citigroup, 56 per cent of General Motors 
Acceptance Corporation (GMAC), 60 per cent of the reconstituted General Motors (GM) and 10 per 
cent of Chrysler.  In March 2010, the US Treasury  had announced its intention to dispose of the 
Citigroup common shares over the course of 2010, subj ect to market conditions.  About one-third of 
those Citigroup holdings had already been sold off.  In selling Tr easury's equity holdings, four 
principles had been followed:  first, investments would be disposed of as soon as practical;  second, 
those sales would be carried out in an orderly manne r to minimize the impact on financial markets;  
third, private capital formation to  take the place of government would be encouraged;  and fourth, 
Treasury would not intervene in the day-to-d ay management of the private companies. 
113. He then discussed the effects of the US respon se to the financial crisis on trade in financial 
services.  Foreign banks' market share in the US, defined as foreign bank assets to total bank assets, 
had remained constant during the crisis, at about 21 to 22 per cent of the market.  Likewise, foreign 
bank deposits, as percentage of tota l deposits, had remained constant at about 18 or 19 per cent.  As 
with most other financial sector indicators, trade in financial services (both imports and exports) had 
contracted sharply between December 2007 and March 2009 before resuming growth again.  
114. He then turned to the question of competition policy.  By definition, a financial crisis 
originated from market failure, which required government intervention.  The objective was to 
provide liquidity and to correct flaws in market opera tions.  It was natural, therefore, to see costly 
government interventions and a decline in the price of  risk.  It was indeed the objective of government  S/FIN/M/64 
 Page 21 
 
 
  intervention to bring down the price of risk broadly.  Since the market had not been pricing risk 
correctly, there was a role for such intervention.  To use the decline in the price of risk as evidence 
that governments' response to the financial crisis had caused market distortions was equivalent to 
denying the objective of those policy interventions.  In his view, it w as not credible to claim that the 
intention had been to gain a market advantage;   rather, it was to correct a market failure. 
115. Regulatory failure, both in the US and elsewhere , had led to the conditions that had created 
the crisis.  The US had responded with a regulatory reform legislative proposal that had recently made substantive progress towards its final adoption.  It  was 1,800 pages long and expected to be signed 
into law later in the week.  This was a comprehe nsive market reform.  It did not amount to re-
regulation, since the objective was not to go back to th e situation prior to the crisis.  Rather, this was 
an entirely new regulatory framework that would be  imposed in response to the failures that the 
financial crisis had revealed.  GATS commitment s had not been an impediment to any of these 
regulatory initiatives.  He concluded by saying that  the entire regulatory package was consistent with 
the principles of national treatment a nd equality of competitive opportunity. 
116. The representative of Turkey
 said that, while the crisis had had a severe impact on the real 
economy, manifested in a sharp decline of exports  and further increase in unemployment rate, its 
impact on the banking sector had not been that signi ficant thanks to the measures taken by Turkey 
after the 2000-2001 crisis.  The restructuring progr amme implemented then had helped the Turkish 
banking sector remain relatively stable during the rece nt financial crisis.  She recalled that Turkey had 
been criticized at the time by international standard -setting organizations for taking very strict policies 
regarding capital adequacy, credit cards, consumer lo ans and financial derivatives.  The recent crisis 
had proven that these policies were prudent and appropriate.  No Turkish bank had gone bankrupt, 
suffered form a significant liquidity shortages or a decline in capital adequ acy ratios.  The Turkish 
government had been able to handle situation withou t any financial protectionist measures.  Another 
important lesson to be drawn from th e crisis was that there was no "one-size-fits-all" approach.  In 
fact, countries should be left some policy space wh ile implementing international standards.   
117. The Turkish insurance sector had been indirectly  affected by the global crisis.  Weaknesses in 
domestic and foreign demand prevented the sector's pr emium from growing in real terms in 2009.  As 
the crisis had posed increasing risk also on the in surance sector, new regula tions had been introduced 
in order to strengthen the solvency capital require ment in accordance with the changing risks in the 
reinsurance policies of companies.  Another amendmen t had been made to ensure that a weakening in 
the financial structure of the major equity owner al so be counted as one of the factors weakening the 
financial structure of the company.  This was a precautionary measure to avoid that insurance 
companies be adversely affected by the impact of th e financial crisis on the financial structure of the 
company's equity owners.  Additionally, monthly and weekly reports contai ning important financial 
indicators were collected from insurance compan ies, which allowed regul ators to conduct frequent 
financial ratio and scenario analyses.  
118. Turkish capital markets had not been severely e ffected by the recent crisis.  None of the 
intermediary institutions had gone bankrupt.  One of  the major effects of the crisis had been the 
decline in the number of initial public offerings (IPOs).  In 2010, however, IPOs had increased, 
signalling the start of recovery.  
119. The representative of Egypt  said that the Egyptian economy in general, and the banking sector 
in particular, had been only slightly affected by  the financial crisis, thanks to the banking reform 
programme conducted by the Central Bank since Sept ember 2004.  The first stage of that programme 
rested on four main pillars.  First, the consolida tion and privatization of th e banking sector had led to 
a decrease in the number of banks operating in Egypt from 57 at the end of September 2004 to 39 
banks in 2010.  Eighty per cent per cent of the stak e of the Bank of Alexandria, the largest State-
owned bank, was sold to Italy's Sanpaolo bank.  In addition, the State had sold its shareholdings in 14 S/FIN/M/64 
Page 22  
 
  of the 17 joint-venture banks.  Second, the manageme nt of state-owned banks had been restructured 
completely, by establishing new departments for risk managements, information technology, and 
human resources.  In addition, a full audit of state-owned banks had been conducted according to international accounting standards.  Thirdly, the problem of non-performing loans had been 
addressed.  The Central Bank's non-performing management unit had succeeded in helping state-
owned banks to settle more than 90 per cent of non performing loans.   Fourthly, bank supervision had 
been upgraded.  In this context, a technical assist ant programme had been completed in collaboration 
with European Central Bank (ECB) and four Europ ean central banks in the last quarter of 2004. 
120. The second stage of the reform programme had st arted in 2009, and should last till 2011.  The 
aim of this stage was to develop the Egyptian ba nking sector, increasing its competitiveness and risk 
management practices.  The main pillars of the second stage were the following:  preparing and 
implementing a comprehensive programme for the financial and managerial restructuring of 
specialized state-owned banks;  continue with the restructuring of the three commercial state-owned 
banks;  applying Basel II capital standards to Eg yptian banks;  and adop ting policies to improve 
access to finance, particularly for SMEs.  In this context, a protocol had been signed with the ECB 
and seven European central banks to provide a thre e-year technical assistant programme starting on 
January 2009, aiming at implementing Basel II standards.  
121. The representative of South Africa
 noted that his delegation was not in a position to provide a 
detailed response about his country's measures in response to the crisis.  This work was the 
responsibility of the Finance Ministry and the R eserve Bank, and he hoped that a more detailed 
response could be provided at a later meeting.  He  could say, however, that, whilst there had been no 
direct effect on South Africa's financial sector, the country had suffered severely as a result of global 
contagion.  Between 2008 and 2009, one million jobs ha d been lost, despite the biggest infrastructure 
programme implemented in the country's history in preparation for the football World Cup.  In his 
view, the situation could have been worse had it not been by the strong financial regulation and 
supervision implemented since the 1990s, the fact that  most debt was denominated in local currency, 
and the existence of some – albeit lim ited – foreign exchange controls. 
122. The current turmoil in global financial markets highlighted a number of issues for the work of 
this Committee, including regulatory issues a nd the interaction between regulation and GATS 
obligations and disciplines.  The rationale for the proposal formulated initially by his delegation in 
June 2009, and submitted in writing in  September 2009 together with Argentina, Ecuador and India, 
centred on concerns about how developing countries  were being impacted by the global financial 
crisis.  Specifically, these four Members were concerned about how the various financial support 
programmes implemented in the largest economies we re impacting the real economies of developing 
countries.   
123. The proposal outlined concrete steps in terms of  research on these issues.  It confined the 
universe of measures to be analyzed to the measures already included in three reports of the Director 
General to the Trade Policy Review Body (TPRB), namely JOB(09)/2 (Overview of national bailout 
measures/plans and guarantee schemes for financial institutions);  JOB(09)/30 (Annex 3 - Overview 
of National Bailout Measures/Plans and Guarant ee Schemes for Financial Institutions);  and 
JOB(09)/62 (Annex 3 – Measures for Financial Ins titutions).  Setting a pre-defined universe of 
measures would allow Members to define the sc ope of the proposed programme, and would avoid 
giving the Secretariat the burdensome responsibility of having to decide which measures should or 
should not be included in the study.  
124. Some Members had raised concerns about the di stinction between the work undertaken by the 
TPRB and this proposal for the Committee.  In his view, valuable as they were, the reports by the 
TPRB did not actually analyse in depth the negative spillover effects, or verified whether distortions had in fact occurred.  In particular these reports di d not examine the extent to which trade in financial  S/FIN/M/64 
 Page 23 
 
 
  services, including conditions of competition, was be ing or had been affected by the financial support 
programmes.  In addition, in his view, these reports did not contain an economic analysis of the impact of these measures. 
125. He added that the proposal had been significan tly amended from its original version in an 
effort to accommodate as many views as possible.   The exercise proposed was one of assessing the 
extent to which trade in financial services, incl uding conditions of competition, was being affected by 
certain measures adopted during the current crisis.  The proponents did not object to the discussion of 
the linkage between the GATS prudential carve-out and the financial support programmes and similar 
measures.  However, as a token of flexibility, any reference to the exercise aiming at analysing the 
legal consistency of these measures had been removed. 
126. For purposes of transparency and information shar ing, the Committee, with the support of the 
Secretariat, should compile an updated list of all financial support programm es and similar measures 
provided by Members, including the amounts involved and any other relevant information.  In addition, noting that emerging markets had relie d significantly on international credit lines, the 
Secretariat should conduct research on the imp act of these measures on the availability of 
international credit lines to these markets.  
127. So far, his delegation had neither heard nor seen  any indication that aggressive market access 
demands would be changed to take account of the gr avity of the crisis and the factors that had given 
rise to it.  His delegation took note, however, of the efforts made in many developed countries to "re-
regulate" and to move away from the discredited not ion of reckless deregulation in the hope that the 
market could police itself.  Those efforts were welcom e, as the crisis had clearly demonstrated that in 
this age of highly interconnected financial markets, a lack of adequate regulation in one market could 
have a negative contagion effect on other markets.  His delegation would, of course, look with interest 
at the details of these "re-regulation" measures to  assess their consistency and compatibility with 
Members' GATS obligations and existing market a ccess commitments.  In concluding, he called on 
the Chair to conduct consultations with all Members with a view to further developing this work 
programme in the Committee.   
128. The representative of Indonesia
 said that Members faced the challenge of ensuring that 
financial institutions be able to intermediate e ffectively and support economic growth without giving 
rise to the circumstances that led to the financial crisis.  During the financial crisis, the Indonesian 
government had taken some measures  aimed at reducing exchange ra te volatility, including through 
intervention in foreign exchange markets and fo reign exchange swaps transactions.  Emergency 
liquidity assistance had also been provided to th e banking sector.  He underlined that financial 
liberalization should not interfere w ith Members' efforts to maintain financial stability.  The WTO had 
a role to play in facilitating the creation of a gl obal financial system mo re conducive to financial 
stability.  
129. The representative of Nigeria  said that the crisis had had an adverse impact on Nigeria 
through reductions in ba nk lending, portfolio flows, remittances from migrant popul ations, and export 
revenues.  The shrinking in the demand of rich ec onomies led to reductions in consumption of oil, 
metal and other primary products, which had affected Nigeria's fo reign sector.  Appropriate policy 
intervention depended on the thorou gh understanding of the nature and the depth of the crisis, and 
how it affected capital flows to Nigeria.  Furtherm ore, since no two economies were exactly the same, 
the methods used to intervene in times of financial difficulties would necessarily differ from one 
country to the other.  The policy measures adopted by Nigeria to reduce the impact of the financial 
crisis included the following:  reductions in inte rest rates from 10.25 per cent to 9.75 per cent;  
reductions in the cash reserve requirement for bank s from 4 per cent to 2 per cent;  and cuts in the 
liquidity ratio from 40 per cent to 30 per cent.  In  addition, interbank lending facilities to banks had 
been expanded and extended up to 260 days.  Disc ount window facilities had been expanded as well.  S/FIN/M/64 
Page 24  
 
  According to the Central Bank, these measures had a llowed the injection of about 150 billion naira 
into the system.   
130. The Chairperson
 said that the dedicated discussion,  which benefited by the active 
participation of Members, had been very interesting.   It was clear that topic was of interest to all 
Members, and that the Committee was the relevant forum for discussions that had a bearing on trade 
in financial services.  In her view, the discussion provided further insights into the types of policy 
actions that Members had taken to mitigate the effe cts of the crisis.  This was apparent both in the 
presentations by the IMF the BIS and the OECD and in Members' statements about their national 
experiences.  
131. One of the themes of the discussion throughout had been that regulatory reform was of the 
utmost importance and that countries needed to ensu re that there was appropriate regulation, as well 
as a consistent application of regulation across the world.  The discussion had also shown that there 
was not necessarily a "one-size-fits-all" approach  for specific regulations, which had become 
apparent, for example, in the discussion about subsidiarization requirements.  It was also clear that the international community was confronted with  a substantive regulatory reform agenda. 
132. Referring to the proposals made by some Members to consider further work under this agenda 
item, she said that she would conduct consu ltations to see where convergence might lie, and 
encouraged all Members to come up with  ideas that might facilitate her task.  
133. The Committee took note
 of the statements made and decided  to revert to the item of "Recent 
Developments in Financial Services Trade" at the next meeting.  
B. ACCEPTANCE  OF THE  FIFTH  PROTOCOL  TO THE  GATS. 
134. The Chairperson  recalled that three Members had yet to accept the Fifth Protocol, namely:  
Brazil, Jamaica, and Philippines.  At the last m eeting, these three delegations informed the Committee 
that they had not been able to make progress on this issue.  In the interest of time, she asked these 
delegations to take the floor only if ther e was any new development to report.   
135. The representative of the Philippines  said that there was no de velopment to report on this 
matter.  The 14th Congress of the Philippines had adjourned sine die  and this matter would have to be 
resubmitted for the consideration of the 15th congress once the latter had been convened and properly 
organised.  
136. The Chairperson encouraged these three Memb ers to accelerate their procedures for the 
acceptance of the Protocol. 
137. The Committee took note  of the statement made and decided  to revert to this item at the next 
meeting.  
C. TECHNICAL  ISSUES   
138. The Chairperson  recalled that the Committee had taken tw o decisions under this agenda item.  
The first one was to organize a seminar on trade in non-life insurance services, and the second one 
was to go ahead with Pakistan's proposal to or ganize a dedicated discussion on the "Impact of 
Technological Developments on Regulatory and Comp liance Aspects of Banking and Other Financial 
Services under the GATS".  As indicated at the last meeting, that dedicated discussion would be held 
at the meeting of the Committee in September.  Th e Secretariat, as agreed, would circulate a short 
Background Note on the issues raised by the Pakistani proposal before that meeting.  S/FIN/M/64 
 Page 25 
 
 
  139. She then presented a brief report of the semina r on trade in non-life insurance services held on 
28 June.  In her view, it was a very interesting se minar, which allowed for an informative discussion 
and an interesting exchange of views and perspectives on trade a nd regulation of non-life insurance 
services.  The size of the sector – often overlooked in  negotiations – was worth highlighting.  In 2007, 
the non-life insurance sector was worth US$1.5 trillion,  equivalent to twice the size of the global 
computer services industry.  In addition, insura nce companies in general controlled over 11 per cent 
of global financial assets.  Non-life insurance was certainly concentrated in developed markets, but 
the situation was changing, with a growing numbe r of emerging economies making inroads in the 
global marketplace.  Interestingly, the link betw een growth of the insurance sector and economic 
development was drawn by some of the speakers.   
140. As shown in one of the presentations, in what seemed to be a common view in the industry, 
the insurance sector had been less affected by the financial crisis than other financial sectors, due 
mainly to the wide diversification of insurance companies' investments a nd the insurance business 
model, which was different from the other financia l institutions model.  Whenever problems had 
arisen in specific insurance groups, they seemed not  to have been due to  the insurance business per se  
but to the involvement of these companies in othe r financial services different from insurance.  
141. The sector had been undergoing liberalization over the last decades, and it appeared to be 
more liberalized than life insura nce services, as evidenced by foreign penetration in the non-life 
segment in various markets.  And there were cert ainly some segments of non-life insurance services, 
which had always been highly internationalized, such  as reinsurance and marine insurance, and which 
had developed globally thanks to a rather light-hand regulatory approach.  
142. She further said that it was clear, as eviden ced by the US International Trade Commission 
report presented at the seminar that, methodological issues notwithstanding, market access and other 
discriminatory barriers still remained in several markets.  Some of the examples mentioned included inter alia,  foreign equity limitations, joint venture requi rements, limitations on the establishment of 
branches, restrictions on reinsurance cession and coll ateral requirements, nationality requirements for 
members of Boards of Directors, and other limitati ons to the temporary movement of specialists.  
There was still some way to go in terms of trade liberalization in the sector.  
143. Some presentations had focused on the experi ence of different countries, developed and 
developing, with the liberalization of non-life insurance services.  Countries had been pursuing liberalization with the purpose of improving servi ces, enhancing access to insurance services, and 
incorporating foreign capital and expertise in a key sector of the economy.  Some very innovative 
products and services had been adapted to specific ma rket needs and to deal with global challenges, 
such as climate change. 
144. Another issue which had arisen in a couple of th e panels was the question of certainty, and the 
role it played in this sector because of the business model used.  Certainty with regard to regulation 
and market access were highlighted as being important to the growth of the industry.  The interaction 
between liberalization and regulation, or better still, the need to make sure that trade liberalization was 
accompanied by sound regulation, was also an issu e that came up repeatedly.  One aspect of this 
liberalization-regulation issue worth noting, in her view, was that, while the non-life insurance 
business had become increasingly global, regulation and supervision were s till very much conducted 
at the national (or even State) level.  This  called for better intern ational coordination.  
145. She concluded by saying that the seminar had provided a good model to use in the future for 
generating informative discussions on market and regul atory developments whic h could be applied to 
other industries or sectors.  It was a good way of br inging some of the technical and substantive issues 
to the forefront of Members' work in this Committee.  It might even be an appropriate model for other S/FIN/M/64 
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  Committees.  She finally encouraged delegations to  come forward with proposals for other seminars 
in other services sectors that might be of interest to them. 
146. The Committee took note
 of the statements made and decided  to revert to this agenda item at 
the next meeting.  
D. TRADE  IN FINANCIAL  SERVICES  AND  DEVELOPMENT 
147. The Chairperson  informed Members that this agenda item had been requested by the 
delegation of China, who had also submitted a room  document on the topic, circulated to all Members 
on 24 June.  
148. The representative of China  said that financial services were essential for any modern 
economy.  The sector channelled funds from differen t sources to where they were most needed, 
reduced the risks of economic activities, and impr oved the overall efficiency of the economy.  
However, developing countries were lagging far behind in terms of access to, and the capacity to 
supply, financial services.  It was therefore important  to have an in-depth discussion on the role of the 
financial sector for economic gr owth and development as well as on the relationship between 
liberalization and development in this particular sec tor.  Realizing that this was a broad theme for 
discussion, she encouraged Members to come forward with additional inputs to narrow down the issue 
and identify specific topics that could be discussed.  
149. Without prejudice to China's positions in the negotiation, she proposed as a first topic "The 
role of the financial sector in promoting economic  growth and development".  This was a very 
particular subject in the post-crisis era, as many co untries were interested in developing their financial 
sectors so that they could generate real and sust ainable economic growth rather than asset bubbles.   
150. The second topic proposed was entitled "Experie nces in liberalizing the financial sector:  
gains and pains".  In her view, the costs and bene fits of trade liberalization had not been thoroughly 
explored.  While many saw liberalization of trade in financial services as an essential factor contributing to the development of the sector, othe rs regarded excessive and premature liberalization 
as leading to financial instability.  In the context of  GATS, the financial services sector was one of the 
most extensively committed sectors:  Members had made more commitments in financial services 
than in any other sector except tourism.  The proposed discussion provided an occasion to share 
experiences with respect to the liberalization of the financial sector.  
151. The third topic concerned "Challenges and di fficulties faced by the developing country 
Members in making further liberalization commitments :  Clarifications and exploration of possible 
solutions".  In the current round, financial services proved to be one of the most sensitive sectors in 
bilateral markets access negotiations.  Many develo ping Members had expressed great difficulties in 
offering further liberalization commitments.  Th e Committee was in her view the right forum to 
exchange views on these difficulties. 
152. The fourth topic focused on "R egulatory practices and trade and financial services".  As 
clearly demonstrated by the recent financial cris is, sound regulatory practices were crucial to the 
healthy development of the financial sector and the expansion of trade in financial services.  Members 
could use the Committee as a forum for ex changing views on regulatory practices.  
153. In order to kick-start the discussion, the repr esentative of China proposed that the Secretariat 
prepared a brief Note reviewing existing studies and research on the subject.  In her view, such an 
input from the Secretariat would greatly facilitate Members' discussions.  S/FIN/M/64 
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  154. The representatives of Argentina , Barbados , Brazil , India , Indonesia  and Turkey  said that 
their authorities were still analyzing the proposal, so they did not have specific comments at this 
stage.  However, on a preliminary basis, they fo und the proposal interesting.  The representative of 
Turkey added that the issues should be narrowed down with the help of the Secretariat. 
155. The representatives of Kenya  and  Pakistan  supported the proposal.  
156. The representative of Hong Kong, China  said financial services served multiple purposes in 
an economy, and economic development was certainly one of them.  It was therefore important for 
Members to discuss and emphasize this developmen t perspective.  The fourth topic proposed by 
China was of particular interest to his delegation.  The third topic also seemed very relevant, and a 
discussion could prove instrumental in the progressive liberalization of the sector.  
157. The representatives of the Philippines  and South Africa  said that this was a very important 
issue for discussion.  However, since their authorities were still considering all the issues raised in the 
Communication by China, they looked forward to another – more substantive – discussion on the proposal.  
158. The representative of Nigeria
 expressed interest in the proposal, particularly in the topic 
regarding the challenges and difficulties faced by developing country Members in making further 
liberalization commitments.  He supported the sugg estion that the Secretariat prepare a background 
document to facilitate Members' discussions.  
159. The representative of the United States  said that his delegation would like to reflect further on 
the proposal.  He suggested that the Chairpers on conducted consultations with Members before 
agreeing on any specific mandate to the Secretariat. 
160. The representative of Thailand  supported the proposal.  His delegation was particularly 
interested in the second and third topics proposed by China.  
161. The Chairperson  said that there seemed to be quite a lo t of support for the idea of putting this 
item on the agenda, although several delegations we re still reviewing the proposal and would like to 
have more time to think about the possible content of  a discussion.  She proposed therefore to put this 
item on the agenda of the next meeting and to hold c onsultations on two aspects:  first, on the details 
of the discussion, i.e. its structure and content;  and, second, on the proposal for the Secretariat to 
prepare a paper.  The Committee so agreed . 
 
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