Finance news

Finance ministers from the Group of Seven nations agreed to promote efforts by banks to improve their disclosure rules and pledged to swiftly act on regulators' recommendations on enhancing financial stability.

Issues the G-7 governments plan to address include getting banks to disclose valuations of structured products in a timely fashion, advance the management of liquidity risks arising from their inability to meet obligations and improve information on their exposure to off-balance sheet vehicles, according to a statement in Tokyo today.

Governments will also scrutinize potential conflicts of interest at credit-rating companies and vowed to implement the so-called Basel II accord on capital adequacy in lending, which countries such as the U.S. haven't adopted yet.

“We stand ready to take any further action necessary to enhance stability in the financial market and to ensure that international integration of financial markets and financial innovation continue to bring about benefits to the world economy,'' the G-7 statement said.

The comments put the spotlight on ways to prevent a repeat of the U.S. subprime mortgage crisis, rather than fixing its damping effects on economies. In the U.S., the Securities and Exchange Commission may propose new rules for credit-rating companies and has created a “subprime task force'' to review banks' risk and liquidity management.

Banks and securities firms have marked down about $146 billion of losses since the beginning of 2007, partly due to their exposure to structured investments such as collateralized debt obligations backed by mortgages cashadvance.

Market Rout

The statement reflects the preliminary findings of the Financial Stability Forum of international regulators, led by Italian central bank governor Mario Draghi, who participated in today's meeting. Draghi was asked by the G-7 to examine the causes of the market rout and will present his full report to the group in April.

German Finance Minister Peer Steinbrueck said yesterday he may impose tighter national regulation should the G-7 and the European Union fail to take action. Banks should set aside more of their own money for the riskiest loans they grant and market transparency should be increased, he said.

While U.K. Chancellor of the Exchequer Alistair Darling said yesterday G-7 nations must agree “quickly'' on ways to make markets more stable, U.S. Treasury Undersecretary David McCormick said Feb. 5 “the issues are complex and require careful analysis so that we can effectively target the real problems and not rush to judgement.''

The G-7 consists of the U.S., the U.K., Japan, Canada, France, Germany and Italy.

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