The most recent Group of 20 gathering was held only weeks after the nadir in equity markets, and its fighting talk spurred a rally that has lasted until the follow-up meeting, which starts tomorrow. But while a host of indicators has improved since April, it is too early for leaders to strut the streets of Pittsburgh.
The London communiqué made five main pledges. Only one, however, has been delivered. The first was to restore confidence, growth and jobs. To be sure, things are less bad. But it will be years before growth and jobs return to pre-crisis levels, certainly in developed economies. Another slump is a real possibility once fiscal and monetary taps are turned off. The second pledge, to restore lending, has also not materialised. Banks are hoarding capital. US consumer credit, for example, fell at an annualised 10 per cent in July. Bank lending to companies is also contracting, although bond markets have taken up some of the slack.
Strengthening financial regulation and rebuilding trust were next. So far there have been few changes to regulations and readers themselves can decide if they trust banks more than they did six months ago. The fourth pledge was to fund and reform banks to prevent “future crises”. But the structure of most banks has not changed one jot, yet. For all the recapitalisations, core equity as a proportion of total assets for US banks with more than $10bn in assets, for example, has increased only 56 basis points in the past year, to 7.9 per cent, according to Federal Deposit Insurance Corporation data. In other words, America's biggest banks are still 13 times leveraged.