U.S. diplomats in London in late 2009 were listening to U.K. officials’ ideas about how wealthy countries should restructure their financial regulatory systems.
WikiLeaks included several financial services cables written by the London diplomats in a batch of leaked cables posted on the Web Monday.
The diplomats reported in a confidential cable sent in March 2008 that Bank of England Governor Mervyn King already regarded the collapse of the commercial paper market as having caused a financial institution solvency crisis, rather than a mere liquidity crisis.
King said at a lunch meeting with Treasury Deputy Secretary Robert Kimmitt and a U.S. ambassador that regulators needed to give banks a way to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance and to create a coordinated effort to recapitalize the global banking system.
The “Group of 7,” a group for wealthy countries, was “almost dysfunctional on an economic level,” King said, according to the cable.
“Key economies are not included, especially those that have large and growing pools of capital,” the diplomat author wrote. “King said that a new international group was needed to address the issue. It could be a temporary group, and he suggested that perhaps the central banks and finance ministers of the U.S., the UK, and Switzerland could coordinate discussions with other countries that have large pools of capital, including sovereign wealth funds, about recycling dollars to recapitalize banks. King said Japan might not be included because it has little to offer. King noted, though that including the Japanese might force their hand in finally marking to market impaired assets.”
Later, in the fall of 2009, diplomats talked to U.K. members of Parliament and others about U.K. regulatory changes that resemble some of the provisions in the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act.