henrique meirelles : regulation and international standards in brazil, the us, the eu and switzerland speech by mr henrique meirelles, governor of the central bank of brazil, at the first international conference on law & economics, ibmec sao paulo, in cooperation with the foundation for law and economics at the university st gallen, switzerland, held in sao paulo, 2 april 2009. * * * the world is experiencing the most severe economic and financial crisis in 80 years. what started as a deleveraging process in the us banking system has extended to a strong downturn not only in advanced economies, but also in the emerging world. it is emblematic that we are here today in sao paulo discussing regulation at a time the issue is also being discussed at the meeting of heads of states of the g - 20 in london. much of the focus of the meeting relates to the redesign of the international financial system and its regulation, including possibly the outline of a sort of international financial regulator. the current financial turmoil is ultimately a result of the failure of regulators, supervisors and policymakers in the advanced economies to prevent excessive risk - taking and leverage and to account for the interplay between regulated and non - regulated markets, partly due to their fragmented regulatory frameworks, partly due to legal restrictions on information and data sharing. lax regulatory standards, coupled with poor risk management practices, deleterious incentives for risk - taking and deficient corporate governance structures in financial institutions are costing the global economy a high price. throughout the years, brazil has adopted more cautious and broader regulatory standards than the international norm. just to mention a few examples of what i am referring to, there are twenty - one different types of financial institutions under the regulation and supervision of the central bank, from universal banks to credit unions, all sharing common prudential and leverage rules. furthermore, not only capital requirements are higher in brazil than the basel recommendation but also all capital requirements and controls are applied on a consolidated basis that includes non - financial subsidiaries in a banking group, so that most institutions are consolidated for supervision purposes. finally, accounting standards adopted in brazil require that all operations be kept on balance, with the respective risk requirements and provisions. risk management and internal controls regulations, as well as prudential loan loss provisioning requirements and large exposure limits have been in force for many years in brazil. additionally, having learned from past experience of international integration and fast contagion, the central bank makes careful evaluation of financial innovations and

global systemic crisis. how to react to that? if the crisis is “ imported ” and the country cannot meet its financing needs, the imf should provide liquidity and contribute to any kind of anti - cyclical adjustment. in that regard, the authorities of leading economies should usefully consider to allow the imf to issue bonds. in a moment of de - leveraging, when we are talking about re - leveraging, a leveraged imf would have increased ability to meet its rising challenges. in regard to the world bank, it should focus on poor countries, the ones that not only require liquidity or loans, but effectively need financial support. and for both the imf and the world bank, a critical question today is legitimacy. and the way emerging market economies are playing a more important role in the global economy – not only they are representing a larger share of world output as compared to before, but also represent at this point a solution for the crisis – it is imperative that these countries have a proportional weight in the governance structure of the two bretton woods institutions. another fundamental development these days is the increasing role played by the g20, for the very same reason of the growing participation of emerging markets economies in global output. it is clear today that the g7 alone or even the g10 are not able to address all relevant issues that affect the world economy, which are better dealt by a larger group as the g20. evidently there is always a trade - off, the larger the group, the more difficult its effectiveness. but that is a challenge that we have to face. the first meeting of heads of states of the g20 was an essential step towards making the g20 a more effective decision - making forum. the next topic is a global supervisory authority. the g20 suggested the creation of a college of supervisors, following a financial stability forum recommendation. president kohler raised here the idea of having the imf playing this role. we are in the very preliminary phase of this discussion and many challenges lay ahead in that regard, particularly deciding what should be subject to international supervision and what should be subject to national or regional supervisory entities. much of the discussion today evolves around crisis prevention. in terms of crisis resolution, the recommendation is for every country to take all the necessary actions to restore the regular working of its financial system, consumer and investor confidence and the level of economic activity. but every country must act according to its needs and resources. countries were financial institutions faced