How to restore trust in the financial system?

This regulatory fragmentation has a range of causes: the ring-fencing of some national banking systems; the adoption by major regions such as Europe and the US of different accounting systems; and unilateral and differing implementation of agreed principles.

Whatever the causes, the impact is the same: a less efficient and effective international financial system because of uneven and unequal rules, and lower global economic growth as a consequence.

Trust between advanced and emerging economies is also at risk. Financial sector reforms, developed in response to the financial crisis that primarily originated in the banking systems of the major Western currency areas, are being implemented globally.

While this reflects the reality of an integrated global financial system, it masks another reality: that emerging markets are largely "policy takers" rather than "policy partners".

Emerging markets feel that their specific concerns such as providing banking services to everyone are not being treated as priorities.

Many emerging markets worry that they lack the infrastructure and financial platforms to ensure effective implementation of some highly complex financial reforms. With immature capital and bond markets and limited supervisory capacity, unintended regulatory fragmentation could occur, with negative consequences for the global financial system.

Does international cooperation have to involve a one-size-fits-all prescriptive approach, or could it allow for more principles-based equivalency for countries at different stages of financial sector maturity?

The simple reality for governments around the world is that a more rapidly growing global economy needs greater growth in lending and credit, but regulatory fragmentation, loss in trust and unnecessary complexity are inhibitors, not facilitators.

It is time for G20 political leaders to reconsider whether the extent of international policy coordination is adequate given the emerging fragmentation and trust deficits.

Part of this much-needed renewed international coordination should involve making emerging economies greater "policy partners" in the common purpose of building a more efficient, effective and resilient global financial system. And international coordination cannot be successful unless trust in national financial systems and among systems is improved.

Kevin Lynch is vice-chairman of BMO Financial Group. He is chair of the Global Agenda Council on the Global Financial System. Liao Min is director-general of the China Banking Regulatory Commission's Shanghai office and a member of the Global Agenda Council on the Global Financial System. The views do not necessarily reflect those of China Daily.