The Systemic Risk Council has released a policy statement to the finance ministers, governors, chief financial regulators, and legislative committee leaders of the G20 countries. It expresses support for maintaining minimal international standards in global financial reform measures.

“This year will mark the tenth anniversary of the beginning, in early summer 2007, of what became the Great Financial Crisis,” an SRC statement says. “At a moment when efforts to complete vital, robust banking reforms in Basel seem to have stalled, when speculation swirls about the possibility of the U.S. repealing parts of the Dodd-Frank Act and when, in prospect, EU and U.K. financial policy could conceivably diverge for the first time since the collapse of the post-WWII Bretton Woods international monetary order, we…have decided to put on the record our view of the essential ingredients of a safe and sound financial system that can serve the interests of people, businesses, and entrepreneurs in individual nations and across the world.”

The Systemic Risk Council is a private sector, non-partisan body of former government officials and financial and legal experts committed to addressing regulatory and structural issues relating to global systemic risk, with a particular focus on the United States and Europe. Members include Sir Paul Tucker, former deputy governor of the Bank of England; Jean-Claude Trichet, former president of the European Central Bank; Paul Volcker, former Federal Reserve chairman; Sheila Bair, president of Washington College and former Federal Deposit Insurance Corp. chair; and Sharon Bowles, former member of European Parliament and former Chair of the Parliament’s Economic and Monetary Affairs Committee.

“This is not a moment to relax or to retreat from the global reform program, given the debt overhang and impaired macroeconomic policy capability to cushion any shocks to continued recovery,” the council says. “Rather, this is a time for stability of the financial system to remain a priority.”

The letter to G20 leaders underscores “the vital importance of “five core pillars” of the global reform program:

mandating much higher common tangible equity in banking groups to reduce the probability of failure, with individual firms required to carry more equity capital, the greater the social and economic consequences of their failure;

requiring banking-type intermediaries to reduce materially their exposure to liquidity risk;

empowering regulators to adopt a system-wide view through which they can ensure the resilience of all intermediaries and market activities, whatever their formal type, that are materially relevant to the resilience of the system as a whole;

simplifying the network of exposures among intermediaries by mandating that, wherever possible, derivatives transactions be centrally cleared by central counterparties that are required to be extraordinarily resilient;

and establishing enhanced regimes for resolving financial intermediaries of any kind, size, or nationality so that, even in the midst of a crisis, essential services can be maintained to households and businesses without taxpayer solvency support—a system of bailing-in bondholders rather than of fiscal bailouts.

“These five pillars remain as vital as ever,” the SRC’s letter says. “Now is not the moment to relax or to retreat.”

When the next recession comes, the SRC warns, central banks and fiscal authorities will not have nearly as much firepower as they were able to deploy in 2009 and maintain until now. With central banks already having bought huge proportions of governmental debt and other bonds, the scope for monetary stimulus is likely to be much narrower than any advanced economy is used to.

“When the next downturn comes, financial institutions will likely be more exposed to losses than in the past,” the letter says. “For any initial shock that kicks off a slowdown, the macroeconomic policy response will probably be weaker.”

“Far from being a moment to relax any of the five pillars of reform, therefore, it may be prudent to adopt tougher policies while the macroeconomic arsenal is replenished and as debt levels are reduced,” the SRC adds. “Simply put, the financial system reform program was not calibrated for our present predicament—namely a world in which productivity growth has proven elusive, the debt overhang has increased, and macroeconomic-stimulus capacity is stretched. In these circumstances, we believe that regulatory policymakers should consider whether to require banks (and possibly some others) to carry more equity than prescribed for the steady state in the years immediately following 2008- 09.”

That belief fuels concern over reports that the Basel Committee on Banking Supervision, and even the Governors and Heads of Supervision who oversee the prudential standard setters, “have been debating softening their plans for the final capital standards in the face of intense industry pressure.”

“That would be a perilous course,” the letter adds. “When bad times come, as sooner or later they surely will again, strong banks lend, weak banks do not.”

“Governments and legislators should resist the siren calls of those who would have them reduce equity standards for big and complex firms, economize on liquidity requirements, retreat on central counterparties, or dismantle the new resolution regimes,” the council says. “Were they, against our expectation, to give way, they would put the welfare of their citizens in jeopardy. They would in effect be opening the door to additional and uniformly unpopular, taxpayer-funded bailouts. They would also be exposing economically marginalized industries and regions to even greater risks than those they already face given changes in the real economy.”

The letter notes that many countries have adopted reforms that go beyond, or complement the shared international program. The U.S. adopted rules that bar banking institutions from running proprietary-trading desks and sponsoring or investing in hedge funds and private equity; and the UK now requires significant domestic retail banks to be ring- fenced from any wider group in which they are housed.

The interconnectedness of today’s world, however, means that “no country can make its own system resilient without cooperation from its peers,” the letter says. “In a nutshell, the resilience of the international financial system is a common global good, for which the G20 authorities are, in effect, joint trustees.”

“Ten years on from the beginnings of the crisis, now is not the moment to bow to financial industry lobbyists or to short-term temptations,” the letter concludes.