G7 eyes plan to avert new crises - Emirates24|7

G7 eyes plan to avert new crises

 

Group of Seven finance officials are mulling a plan to require more openness in complex market investments in an effort to avert future crises, officials said Wednesday.


The gathering of key finance ministers and central bank governors set for Friday comes amid increasingly grim forecasts for the global economic outlook, with worries about a global slowdown and a US recession.

Unlike in recent years, it is the crisis in the US economy that is the focus of officials due to the mushrooming crisis that started in housing and has ravaged the global banking sector.

As a result, the roles are reversed at the G7, with the US the object of attention instead of the country providing advice to others.

A plan drafted by a global group called the Financial Stability Forum (FSF) would require banks and securities firms to be more transparent in their dealings and boost capital reserves as part of improved risk management.

"We look forward to discussing the rapid and effective implementation of the FSF findings with our colleagues," said Treasury Under Secretary David McCormick.

If approved by the G7 rich countries, the new guidelines could be in place later this year in an effort to avoid the kind of surprise losses incurred by many financial institutions when the US real estate market soured.

The new plan would do little to ease the current crisis that has roiled financial markets amid a global squeeze on credit as banks and securities firms are hammered by the meltdown in the US real estate market.

The plan would require credit rating firms to differentiate their ratings for complex securities and provide more information about how they come up with their ratings. Some analysts blame these agencies for luring investors into risky securities tied to the subprime US market because of top-quality ratings.

The plan would also boost cooperation and information exchanges among central banks and market authorities, with cross-border meetings by year-end.

It also calls for central banks to have more flexibility in offering liquidity when the financial system is under stress.

The finance officials from the G7 -- Britain, Canada, France, Germany, Italy, Japan and the United States -- will meet Friday in Washington ahead of weekend meetings of the International Monetary Fund and World Bank.

The Financial Stability Forum includes representatives of 26 entities including central banks, the IMF and World Bank, and market regulators from the large economies. It is based at the Bank of International Settlements in Switzerland.

McCormick said that "a good part of the G7 meeting will be devoted to current economic conditions, financial market developments, and the policy response to recent financial market turmoil."

He said the officials also will discuss progress on the reform of the International Monetary Fund.

As for the US outlook, McCormick said Treasury chief Henry Paulson "will tell them that the housing correction, financial market turmoil, and high energy prices are weighing on US economic growth."

"There are significant downside risks to the outlook, and we are taking action to support the economy as we work through these challenges," he said.

The gathering also features a dinner hosted by Paulson "that will bring together the G7 finance ministers and central bank governors and leaders from several leading financial services companies" to discuss financial market turmoil. (AFP)
 
 
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