Banking sector in 'fragile stability' - Emirates24|7

Banking sector in 'fragile stability'

European Central Bank Governing Council member Mario Draghi told Group of Eight (G8) finance ministers on Saturday that banks have made progress in improving disclosure and enhancing their capital.

Draghi, who chairs a global grouping of regulators aiming to identify problems in the financial system and ways to fix them, said trouble in the banking sector no longer poses a serious threat to the real economy.

But the sector remained in a state of "fragile stability", he said. In a statement at the end of a two-day meeting on Saturday, the ministers also singled out a review of accounting rules as an area where more work needs to be done.

Banks were on track to achieve 100-day action plans recommended by Group of Seven (G7) financial leaders in April, said Draghi, who as the chief of Financial Stability Forum spearheaded the plan.

"So far, we seem to be on track. A number of institutions have been publishing their financial reports in a way that is consistent with best practices and in a way that complies with recommendations made by the FSF on disclosures," he said.

Draghi said there has been progress in other areas of extensive action plans that include enhancing banks' capital requirement rules, reviewing credit rating firms' codes of conduct and co-operation among regulatory authorities.

Fears that a meltdown in the banking system could devastate the real economy have receded after the Federal Reserve helped to orchestrate the bailout of US brokerage Bear Stearns, he said. Banks, especially big ones with feasible business plans, have been able to raise capital – necessary to make up for a huge write-off on sub-prime mortgage products and other securitiesed credit products – Draghi said.

But he said there are caveats. Banks still have some assets off their balance sheets, suggesting they could need more capital if they take them on their balance sheets.