WASHINGTON — The global financial crisis has forced world leaders to do almost unimaginable things in recent weeks, including buying up near-worthless securities and forcing tax dollars on reluctant lenders. Now the Bush administration is considering calls for something the United States and other major powers have long resisted: creating an international system to watch over the world's banks.
In the words of French President Nicolas Sarkozy, the goal is nothing less than to "recast the capitalist system" in an attempt to prevent another global meltdown.
Reflecting long-standing U.S. skepticism about such ideas, the Treasury Department's initial reaction to proposals floated this week by French and British officials was negative. As the world slips into a potentially severe recession, however, economists and political analysts said pressure would mount on the United States to accept new international reins on its freewheeling commercial system.
And if conditions should get dramatically worse, more far-reaching changes may be unavoidable.
After the 1997 Asian financial crisis, the U.S. and its economic partners created mechanisms to more quickly identify and respond to systemic financial problems. Those appear to have failed miserably in the current crisis.
"Really, the system didn't work. And if you don't fix the system, it's going to do it again," said Simon Johnson, a former chief economist at the International Monetary Fund. Creating a global banking regulator was a farfetched prospect until very recently, but views are changing, he said:
"If you'd asked me three weeks ago, I'd have said you were crazy. But I think everything's on the table" now.
Few details of how global banking oversight would work have been advanced. But the ideas being discussed involve creating a new regulatory entity or one within an existing institution such as the International Monetary Fund or World Bank that would examine information from global financial institutions. The goal would be to monitor their balance sheets, assets and other data to spot and at least call attention to speculative bubbles, such as the U.S. housing boom that was fueled by subprime mortgages.
Guarding sovereignty
What gives Washington and some other governments pause is that such a system would force countries to give up a measure of national sovereignty over banks operating within their borders. It also could lead to international bureaucrats trying to shape financial policy and possibly taking punitive action.
