7 November 2008 Media Statement
Promoting change in international financial markets
Finance Minister Michael Cullen says a Labour-led government will take an active role in promoting change in
international financial markets.
"The current international financial crisis has a number of causes, not all of which can be dealt with by improved
regulation," Dr Cullen said.
"Crucial changes can be made which should help make any future financial market disturbance be less catastrophically
destabilising than this one has been.
"The first need is far greater disclosure requirements on financial institutions. Much of the current crisis has its
roots in the complex interwoven web of ever more unreal debt instruments of which regulatory authorities, rating
agencies and others were not fully aware.
"As a result, instruments which were in reality no better than junk bonds had high ratings, yet collapsed under the
pressure of the first chilly economic wind.
"Full and complete disclosure, and much closer monitoring, will be essential.
"Secondly, prudential regulators will need to have the power to prevent issuances which are patently unrelated to any
adequate asset backing.
"The third element will need to be much better coordination between regulatory authorities, both within national
jurisdictions and across them.
"The Northern Rock failure in Britain showed the inadequacies of ill coordinated regulation within one country. But as
international finance is precisely that, international, there is a real need for the regulatory authorities at a
national level to form a stronger international network.
"Finally, as the current financial crisis starts to abate, though the real economic consequences will go on for some
time, it is important that there is international coordination of the current array of emergency measures which have
been taken and how to exit from them.
"In future, we need to avoid the race to the bottom in terms of emergency measures such as deposit grantee schemes which
has characterised this crisis.
"Again, we need a more coordinated consistent approach which reduces the moral hazard and other risks which are now so
obvious," Dr Cullen said.
ENDS