Financial Turmoil moves G7 to Decisive Action

Author: Bill Witherell, Post Date: April 14, 2008

The Finance Ministers and Central Bank Governors of the Group of Seven industrialized countries met Friday, April 11, in Washington D.C. as is the established practice before the annual meetings of the IMF. Very often the public statements released at the conclusion of such G-7 meetings are highly predictable, containing support for established policies, papering over issues where positions are known to differ and rather little that is particularly newsworthy. Friday’s G-7 Statement was an exception. The reason was evident in their frank admission that “The turmoil in global financial markets remains challenging and more protracted than we had anticipated.”

Faced with this situation, the G-7 decided on a very ambitious action program, endorsing all the recommendations in a report the G-7 tasked the Financial Stability Forum to produce, identifying the underlying causes and weaknesses in the international financial system that contributed to the current financial problems. The Financial Stability Forum (FSF) was established in 1999 to “promote international financial stability” by bringing together on a regular basis senior representatives of national authorities responsible for financial stability in major international financial centers (e.g., the Treasury Department, the Federal Reserve and the SEC in the case of the US), international financial institutions, and international groupings of financial sector regulators and supervisors. The FSF Report recommends 65 actions in five areas:

  • · Strengthened prudential oversight capital, liquidity and risk management
  • · Enhancing transparency and valuation
  • · Changes in the role and uses of credit ratings
  • · Strengthening the authorities’ responsiveness to risks
  • · More robust arrangements for dealing with stress in the financial system
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