Introduction section Independent Review of Multilateral Development Banks’ Capital Adequacy Frameworks
Independent Review of Multilateral Development Banks’ Capital Adequacy Frameworks
Multilateral Development Banks (MDBs) have a critical role to play in providing affordable financing to support economic recovery and to help achieving SDGs in a post-pandemic context. MDBs’ scope to leverage shareholders’ capital contributions to provide such financing is determined by their capital adequacy frameworks (CAFs). The crisis has demonstrated the importance of scaling up MDBs financing, but also highlighted the constraint imposed by their CAFs in permitting them to go further in supporting their clients’ recovery.
At the G20 Meeting in Venice (9-10 July 2021), Finance Ministers and Central Bank Governors agreed to launch an Independent Review of MDBs’ Capital Adequacy Frameworks, to «promote the sharing of best practices, maximise their development impact, taking into account their respective development mandates and without prejudice to their governance, credit ratings and preferred creditor treatment».
On 23 September 2021 the IFA WG officially launched the Independent Review, appointing Frannie Léautier as Expert Chair to provide senior leadership, oversee the process and conclusions, and report to the G20 IFA Working Group, and the members of the Expert Panel:
- Ahmed Al-Mohsen
- Paulina Beato
- Chris Humphrey
- René Karsenti
- Ekrem Keskin
- Hans-Peter Lankes
- Nancy Lee
- Mike Muldoon
- Hiroshi Naka
- Betsy Nelson
- Arunma Oteh
- Jens Ulrich
- Jinkang Wu
Key objectives of the Review were to:
- Provide credible and transparent benchmarks on how to evaluate MDB CAFs - including on MDB-specific issues such as callable capital, concentration risk, and preferred creditor treatment - to facilitate a comparable reading of CAFs and of MDB evaluation methodologies used by CRAs across the MDB system.
- Enable shareholders, MDBs and CRAs to develop a consistent understanding of MDBs capital adequacy frameworks, as well as potential lending headroom at prevailing credit ratings on a case-by-case basis that recognises the MDBs strong capital position, financial track record, and their central role in providing development and countercyclical finance.
- Enable shareholders to consider potential adaptations to the current frameworks in order to maximise the MDBs’ financing capacity (and their ability to respond to crises) while maintaining long-term financial sustainability, credit ratings and preferred creditor status.
The Review was independent fromG20 members, MDBs and CRAs.
The Expert Panel benefited from the technical advice of the Basel Committee on Banking Supervision (BCBS) and it availed itself of the input from external experts, MDBs and Credit Rating Agencies (CRAs).
The activities of the Review have been supported by Italy through a dedicated Secretariat which provided administrative and logistical assistance to the Panel.
The report, Boosting MDBs’ investing capacity, produced by the Panel, has been officially welcomed by G20 members and guest countries gathered at the G20 Finance Ministers and Central Bank Governors meeting held in Bali (15-16 July 2022) which stressed the importance of defining a road map for the further discussion and possible implementation of these recommendations.
“The Independent Review of MDB’s Capital Adequacy Frameworks was a key deliverable for the Italian G20 Presidency, and I was very pleased to see its report receive such a broad welcome from G20 members. These are important reforms that could lead to a step change in deploying MDBs’ resources to support vulnerable countries and tackle the daunting challenges we face. “
Alessandro Rivera, Director General of the Treasury, Ministry of Economy and Finance, Italy