Bloomberg News

Putin Urges Tighter Global Derivatives Regulation to Avoid Panic

June 18, 2012

Russian President Vladimir Putin urged Group of 20 nations to tighten regulation of derivatives trading and implement stricter Basel III banking rules to lessen the risk of bubbles in international capital markets.

“Recent trends on the financial markets show an ever- growing divergence with the fundamental indicators in the real sector of the economy,” Putin wrote in an opinion article published today in Mexican daily El Universal. “This only serves to further fuel the general lack of confidence and instability that, as we know, can easily lead to outbreaks of financial panic.”

Putin, who was inaugurated for his third term as president last month, said Russia’s call for stricter financial supervision will form the basis of its proposals at the two-day G-20 summit in Los Cabos, Mexico. JPMorgan Chase & Co. (JPM:US) last month reported $2 billion of losses related to derivatives trading in a unit managing the bank’s risks.

The world’s leading economies are discussing a mix of measures to secure the global recovery that will include deficit reduction for some countries and pledges for additional stimulus by others with sounder finances. Talks will be dominated by Europe’s debt crisis, which leaders from emerging markets say threatens to spread to economies that have so far sidestepped a global slowdown.

Russia’s central bank will monitor the derivatives market to better control its pace of expansion, Bank Rossii First Deputy Chairman Alexei Simanovsky said on June 7. Lenders may be trying to conceal risks with these instruments, he said then.

‘Risks and Contradictions’

“The problems that have emerged in the banking sector and the scale of speculation that has brought down markets show that the global financial architecture is still in need of reform and still contains many internal risks and contradictions,” Putin wrote.

The Russian leader, who was also president from 2000 to 2008, called for “practical steps” in giving developing nations an increased weight in global financial institutions and encouraging the emergence of new reserve currencies.

The world’s leading economies also need to “stop pretending and come to an honest agreement on the acceptable level of protectionist measures that governments can take to protect jobs in times of global crisis,” Putin said.

Russia, which is joining the World Trade Organization this year, is particularly worried about the discord on trade protectionism that “inevitably” results from financial instability, Putin said.

‘Sophisticated Ways’

“It’s time to recognize that governments are on the one hand declaring protectionism unacceptable, but on the other hand are devising ever more sophisticated ways to protect their own economies, disguising protectionist measures as environmental or technical restrictions,” he wrote.

Strains in the banking industry and the scale of speculation show the need for overhauling the global financial system and tying it to “real assets and values,” Putin said.

Putin reiterated Russia is “very much aware” of the need to speed up the pace of the economy’s transformation to reduce its dependence on natural resources.

The needed steps include “radically improving the investment climate, making Russia a globally competitive place to do business, reducing infrastructure bottlenecks, building up its human capital, and modernizing the economy in general,” while respecting all of its social commitments, Putin wrote.

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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