Rift barely avoided.

• Author: Engelen, Klaus C.
• Position: LETTER FROM THE G20 SUMMIT

On the eve of the World Financial Summit in mid-November, a major dispute between the world's bank regulators and those political leaders wanting to put the International Monetary Fund into the role of global financial market supervisor and regulator nearly blew up the summit. Just in time, on November 13, Mario Draghi, Italy's central bank governor, in his capacity as chairman of the Financial Stability Forum, and Dominique Strauss-Kahn, managing director of the International Monetary Fund, signed what amounted to a peace agreement and tensions subsided.

On the Thursday ahead of the weekend summit, Draghi and Strauss Kahn sent out a letter to the finance ministers and central bank governors pledging to "enhance our collaboration" and "to clarify the roles of our respective bodies." Draghi and Strauss-Kahn sitting down together before the meeting and sending a signal of closer cooperation was, says a supervisor, "an act of common sense."

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Leading up to the Washington summit, the twenty-seven EU leaders had shocked the Basel group of central bankers, supervisors, and regulators. Excerpts from their EU summit statement on the financial crisis were highly misleading. Did French President Nicolas Sarkozy, German Chancellor Angela Merkel, and British Prime Minister Gordon Brown really intend to shift enhanced regulatory powers to the International Monetary Fund? Were the EU heads of state sidestepping the Basel-based Financial Stability Forum?

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As the financial crisis worsens, tensions have been rising between the supervisors and the political world. "Some politicians are looking to wrestle control away from the supervisors and central banks who they deem partly responsible for the financial meltdown," writes Central Banking News. "The re-capitalization of banks and issuance of blanket deposit guarantees in several of the world's developed economies has also led to governments demanding a greater say in the manner in which the banking industry is regulated."

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The Financial Stability Forum comprises national financial authorities (central banks, supervisory authorities, and finance ministries) from the major financial centers. Represented are also international financial institutions such as the International Monetary Fund. The forum was established in 1999 by G7 finance ministers and...