G-20 winners and losers

The summit ended on a high note with President Obama pleased that the world's biggest nations will pump more money into the global economy. The big losers? Cowboys who play in the financial markets.

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By Peter Gumbel, Europe editor

LONDON (Fortune) -- How was the G-20 summit in London? "We did OK," said President Barack Obama. "I go back home satisfied," said Indian Prime Minister Manmohan Singh. "We'd never thought we'd obtain such broad agreement," said French president Nicolas Sarkozy.

It's usual procedure at summits for world leaders to walk out of the meeting and claim they got what they wanted. Sometimes it's even true. In the case of Thursday's London confab, the post-meeting harmony was particularly striking because it followed several weeks of public bickering about issues ranging from the size of economic stimulus packages to tougher international regulation of financial markets.

In the end, there was something for everyone. So who are the winners and losers? Fortune's take:

Biggest winner

The International Monetary Fund. Its resources will now be tripled from the current $250 billion under a deal made in London. Until the financial crisis hit, the IMF was in a sort of existential crisis, because nobody wanted its money and its reputation was rock bottom. But suddenly it's being viewed as a savior of countries large and small, especially ones in financial difficulties through little fault of their own. Once again it is being asked to lend -- to Latvia, Iceland, Hungary, Ukraine and now even Mexico.

But getting those new funds means the IMF will have to change: The tough conditions it used to impose as the price of bailouts are now a thing of the past. "We are very happy that the conditions are being relaxed," said India's Singh. Sometime over the next couple of years, its governance structure will be altered to give more clout to developing countries such as India and China.

Who else did well?

The U.S. It wasn't able to persuade Germany and other European countries to boost their economic stimulus packages. Thanks to the fresh money for the IMF and other development banks and a newly agreed $250 billion trade financing commitment from the G-20, though, another trillion dollars is being injected into the world economy. In exchange, the U.S. backed France and Germany's calls for far more aggressive surveillance of hedge funds, and a public crackdown on tax havens -- but that didn't cost much, and falls far short of a bigger, more centralized system of global financial regulation that some European nations had wanted.

France and Germany. They were happy that their regulatory demands were met, especially the tax haven crackdown. "The world has taken note that it must change," Sarkozy said.

Free-trade advocates, including Canada and Australia. They and some others are worried about the growth of international protectionism -- including the U.S.'s "Buy American" provision. They were particularly pleased that the G-20 didn't just repeat pledges about the need for free trade -- pledges that are quickly broken -- but that they also made a commitment for the World Trade Organization to monitor what's happening on the ground and make a fuss about practices it deems unacceptable.

Britain's Prime Minister Gordon Brown. He's having a tough time in opinion polls at home, and getting the world's leaders around a table without breaking too much furniture improves his reputation as a statesmen. Still, it may not be enough to get him reelected, the polls show. (Elections need to be held sometime in the next year.)

For all the upbeat talk, the G-20 leaders acknowledged that their deals won't reverse the world economic slump or fix continuing banking problems overnight. This is a process that will continue, they all said, and they plan to meet again in the fall to monitor progress. Still, listening to them, it was hard to identify any clear loser among those around the table. Nonetheless, there are some losers who weren't represented.

The losers

Fatcat bankers. They, and other corporate executives who walk away from failure with big paychecks, are the biggest losers. The G-20 endorsed recommendations by financial regulators and central bankers for much tighter governance rules on compensation that would tie pay to long-term performance and, especially in banking, take into account the amount of risk that executives are taking.

Freewheeling traders in obscure and opaque markets are the other losers. As part of the regulatory overhaul agreed upon by the G-20 leaders, leverage will now be far more strictly controlled in financial firms.

The revamp of risk management and accounting systems includes the introduction by financial regulators of a "leverage ratio" that would systematically measure the degree to which financial market players have borrowed beyond their ability to cope. Banks would be required to increase their capital ratios in good times, in order to create a cushion for future downturns. Authorities are also likely to introduce or enforce minimum margin requirements on derivatives and other securities contracts. One key accounting technique that has been blamed for some of the current problems, the so-called "value at risk" method of estimating the capital requirements of banks, is also likely to be tossed out or revised.

As Australia's Prime Minister Kevin Rudd put it: "we're beginning to crack down on cowboys in global markets." To top of page

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