Obama: G-20's 'unprecedented steps'
Group of 20 major economies to increase oversight of the global banking system and seek to foster economic growth worldwide.
NEW YORK (CNNMoney.com) -- World leaders agreed Thursday to tighter regulation of the global financial system and pledged more than $1 trillion to bolster lending by the International Monetary Fund to nations in need.
The Group of 20, which represents most of the world's largest economies, is taking "unprecedented steps" to attack the global economic downturn, stimulate growth and expand loans to troubled nations, President Obama said at the close of the group's meeting in London.
"The challenge is clear," Obama said. "The global economy is contracting. Trade is shrinking. Unemployment is rising. The international financial system is nearly frozen."
The group outlined plans to increase oversight of the global financial system. Among other things, the G-20 nations said they would regulate hedge funds for the first time and supervise credit rating agencies in an effort to prevent conflicts of interest.
The G-20 said it would implement new standards on executive pay and bonuses and vowed to crack down on tax havens. To help coordinate these efforts, the G-20 established a Financial Stability Board, which expands the powers of its predecessor: the Financial Stability Forum.
The Financial Stability Forum, which brought together central bankers, regulators and the IMF, will now include all G-20 countries, Spain and the European Commission. Member nations will "commit to pursue" financial stability, transparency and other goals aimed at sound regulation.
"We have a set of principles around dealing with systemic risk that I think will be very important in preventing the kinds of financial crisis that we've seen," Obama said.
Of course, it remains to be seen how far an even beefed up Financial Stability Board can go in promoting better regulation. Ultimately, financial regulation is enforced by individual countries.
Meanwhile, the leaders said they were committed to resisting economic protectionism and promoting global trade, even as analysts say it will be difficult for countries to balance such promises with the need to stabilize local economies.
In addition to coordinating regulation reform, G-20 members agreed to pump $1.1 trillion into the IMF to help restore credit, encourage economic growth and create jobs around the world.
IHS Global Insight, a global research firm, applauded the G-20 commitment to boost IMF lending.
"The biggest surprise was the huge three- to four-fold increase in IMF resources to approximately $1 trillion, which will go a long way to supporting financial stability in the developing world," the firm said in a report Thursday.
The IMF was formed near the end of World War II to promote international financial and economic stability. It is best known for loaning money to smaller economies facing economic crises.
According to IHS Global Insight, the $1 trillion pledged Thursday is more than both the United States and European nations had pushed for.
Colin Bradford, a senior fellow at the Brookings Institution, said the $1 trillion investment "reflects a decision on the part of the 20 countries to make the IMF a truly global institution."
"They pulled out all the stops," Bradford said. "This is an integrated and cohesive strategy. It's almost as good as one could hope for."
The G-20 reiterated that its members are undertaking "unprecedented and concerted fiscal expansion." The fiscal plans are aimed at saving or creating millions of jobs and boosting economic growth around the world.
By the end of the year, these efforts will amount to $5 trillion, according to the G-20 statement. But the group did not specify how much of that amount comes from existing stimulus efforts.
Bradford said the $5 trillion likely includes the U.S. government's $787 billion economic stimulus plan, as well as cash infusions that governments around the world have put into the banking system. "In essence, it is the entire public policy response to the crisis," he said.