We live and work in turbulent times. Today's global financial world does not resemble anything like that of the late 1940s and 1950s, yet in many respects we have the same regulatory architecture in place. The mismatch between the new reality and the old framework has meant that financial crises have had devastating effects: companies go bankrupt, wealth is destroyed, entire financial systems collapse, and economic growth is impaired for years.

In spite of reams of studies on how to reform the global financial architecture, little has been accomplished. Moreover, it is not even certain that national governments and multilateral financial institutions would have the necessary clout to do the job. A few decades ago they were able to protect national financial systems and economies from competition. Today, the more than $35 trillion in private equity capital overwhelms the combined $300 billion in official resources available to the International Monetary Fund (IMF) and the World Bank.

The time has come to go beyond what has been a top-down approach to the redesign of the global financial architecture, and to focus instead on what the private sector – specifically institutional investors and financial intermediaries – can do collectively to help minimize the frequency and severity of future crises. Given what is at stake, both investors and intermediaries share an enormous economic self-interest in championing a new set of common, global norms that would govern how companies compete, how they manage risk, and how they serve their customers.

By working together, these two groups can do a great deal to design a new, market-oriented financial architecture – without waiting for sovereign nations or multilateral organizations to impose it upon them.

After all, investors and intermediaries today play much more of a leadership role in setting national financial strategies in places as diverse as Singapore and Frankfurt than they did even a decade ago. Our recent discussions with regulators in Southeast Asia revealed that the investment actions of CalPERS – whether you agree with its investment criteria or not – have resonated throughout the region and had a major impact on standards and investor communications in those countries where they highlighted their concerns. Vietnam, which is just now accessing the global capital markets, would benefit more by listening to a group of global investors on their investment needs and standards than they would by following only the dictates of the IMF or the World Bank.

Establishing Standards and Safeguards
A new architecture would be built upon market standards and safeguards across three basic pillars common to all financial systems: competition and market conduct; risk management; and customer protection and service. The new framework would be overseen by a new self-governing organization (SGO), composed of representative investors and intermediaries from both developed and emerging markets.

Today, we have globally accepted standards and safeguards for international air travel, disease control, and even warfare, to which the great majority of nations conform most of the time. Yet, while the global financial hubs in New York and London are leading the drive for more common standards for private sector investing and lending, we lack the universal norms for market conduct, risk management, and customer service needed as basic architectural building blocks in our modern financial world.

As a result, financial crises will continue to be all too common events, as countries with weak economic and financial systems continue to plug into global financial markets in search of low cost capital. Shocks the other way, from the developed world to emerging markets, will also occur from time to time. Relentless market forces – driven by both consumer and corporate demands for new products, services, and investment opportunities – will continue worldwide, regardless of the actions that individual countries may take to counter them.

Some investors will continue to prosper from asymmetrical information and financial volatility across all markets. The vast majority of financial customers and institutions, however, have a compelling self-interest in reducing both the risks and costs of future crises while ensuring efficient access to competitive rates of returns, better service, and a lower cost of capital. To speed the evolution and convergence of needed standards, we propose the formation of a new, private sector SGO, comprised of the leading investor groups and financial intermediaries that operate at global, regional, and national levels. Existing groups of investors, such as the International Corporate Governance Network (ICGN), and financial intermediaries, such as the Institute of International Finance (IIF), could be the early conveners and nucleus of this confidence restoring initiative. Obviously, all market participants who understand their own self-interest in minimizing the impact of future financial storms and unnecessary turbulence would be welcome to join, so long as they adhere to those same standards.

This new SGO's mandate would be threefold:

	Adopt new, customer-focused, market-oriented standards and safeguards across the three pillars;
	Monitor compliance with pillars on an ongoing basis through a new, more transparent surveillance mechanism; and
	Encourage greater use of market rewards (higher returns) and market penalties (higher cost of capital) to promote compliance, making adherence to these new standards and safeguards more transparent to all stakeholders.

These new standards and safeguards would reinforce the three pillars of modern financial systems – market conduct, risk management and customer service – and make them comparable across countries as soon as possible. Not only would they act as a credible check on national regulators, but they also would encourage private sector experts to do more, such as with S&P's new corporate governance ratings or Goldman Sachs' new management ratings.

Specific issues for the SGO to address at its first organizing meeting fall into three complementary planks that would reinforce all three pillars of this new architecture.

Across the first plank in the foundation, at the individual company level, many standards can be adopted and implemented now, without waiting years for national governments to change old laws to meet the needs of modern finance. For example, individual, self-governing standards for corporate governance, credit risk and asset/liability management procedures, corporate transparency, accounting reforms, and consumer disclosure and education could be put in place once enough investors and financial intermediaries with market prestige moved to adopt them. Our client work and research demonstrate clearly that companies that move to world-class standards for corporate governance enjoy a premium from investors and higher market valuations. That status in the marketplace creates stronger companies, better able to weather the next financial storm.

Next, while these individual corporate norms are taking shape, efforts to establish more effective and efficient market supervision can begin as part of the second plank. This effort will enable the longer-term building of deeper capital markets by

	Making needed pension fund reforms (e.g., shifting from public to private and tax benefits);
	Creating more effective markets for corporate control to facilitate the takeover of weaker companies by stronger, more competent ones;
	Encouraging the greater use of rating agencies and equity analysts, in order to make it easier for investors to make informed investment decisions;
	Developing more informed business reporting based on greater transparency and comparability of information, driven by a free business press.

The third plank requires more coordinated private sector input and collaboration to increase the efficiency and effectiveness of government regulation. New regulatory schemes will only work if there are new, market-driven rules for entry licensing, business conduct, financial supervision, dispute resolution, and customer protection.

No one should underestimate how hard it will be to launch this new SGO or the challenges of rebuilding the global financial architecture. Yet we see no viable alternative for reducing the size and severity of future financial storms. Only with collective action from those with the most to lose – investors and intermediaries within and across all markets – can we limit the risks, costs, and volatility that financial crises impose on all societies in this interconnected and turbulent world.