Reform of international financial system is inevitable and regulation over the banking sector should be particularly strengthened through the methods of raising capital ratio and setting up remuneration policies, the London mayor said.

During an exclusive interview with Xinhua, Luder said emphasis should be firstly put on capital ratios in reforming the international financial systems.

Banks would need to be more highly capitalized and they would have to be under great control, the mayor said.

"We have seen over past years the impact that banks can have on the global economy. It is a great recognition that this is global crisis we have to work together for common solution," he said.

Directors of the banks, particularly non-management directors, would need to satisfy themselves, he said, adding that banks have an appropriate risk profiles for the level of the capital that they carry.

Directors have to take much firmer steps to ensure those policies within their banks if something happens with their loans, Luder said.

The mayor said the suggestion of increasing capital of banks was very important, saying "whatever the level of capital, banks all in boom times are required to increase their capital, creating a buffer. We all know the economic cycles."

He hoped to see agreements on increasing the capital ratio of the banks. "Banks will be required to carry extra capital made up super profits in the booms to counteract the downturns," he said.

When asked whether financial crisis would happen in the future, he smiled and said "I think that will be a very brave person who will say that you never get a crisis in the future. Extra capital and extra reserve is a very good first step. The second is the remuneration policies."

"What all need to do is to make sure that any remuneration policies are gift encouraging the right behavior of long-term success rather than the short-term success," he added.

As for the reform of the international financial institutions, he said these institutions which were set up at the end of the Second World War need to be modernized to really serve the world.

He said IMF is governing body. The G7 became the G8 and now the G20. "You can't do this like United Nations. You have to have all the key players. So I think the management or the influence over the IMF needs to expand," he emphasized.

However, he said "it is important not to put too much on the G20."

"If the G20 finishes with an agreement to modernize the global financial institutions, an agreement modernization that includes widening participants, and agreements we need to have, we need adopt common international accounting standards, and the agreements we need to have a common regulatory framework or regulators, and agreements that banks need to be better capitalized," he said, "It will be absolutely tremendous."

"I think it is very important to recognize this is heads of government summit over two days," he emphasized.

(Xinhua News Agency March 25, 2009)