By DPA
Washington : Finance ministers and central bank heads from the world’s seven leading industrial nations Friday agreed to a series of new measures to combat a now “entrenched” crisis in the financial sector and to more closely monitor the practices of investment banks.
The G7 ministers’ proposals included an “international college of supervisors” that would keep an eye on each of the world’s largest financial institutions, and promised to boost cooperation among central banks and government agencies to catch threats earlier in the future.
The group urged firms to disclose their full exposure to the financial crisis within 100 days, including all expected write-offs stemming from the lost value of mortgage-related securities and other assets.
Banks have so far reported writedowns of more than $200 billion from the fallout of the home mortgage crisis in the United States, but the International Monetary Fund this week said it expected total losses to reach nearly 1 trillion dollars.
“The turmoil in global financial markets remains entrenched and more protracted than we had anticipated,” a joint statement after the G7 meeting in Washington said.
The group also called for an immediate revision of international accounting and disclosure standards. Private firms, under government supervision, should re-evaluate their risk management strategies and raise capital to prevent a further erosion of confidence in the markets.
Most of the proposals were the result of a study by the Financial Stability Forum (FSF), a global body that was tasked with developing plans to combat the financial crisis.
The G7 ministers were briefed by the FSF’s head Mario Draghi during the afternoon meeting. The group’s report also suggested improved standards for liquidity and greater transparency among credit rating agencies that monitor financial firms.
The financial crisis was largely the result of investment banks’ assets, or value, far outstripping equity, or cash in hand, making them more vulnerable to the sudden downturn in the credit market.
German Finance Minister Peer Steinbrueck said the crisis had shown the financial sector could not be left to monitor itself and that stronger government regulation was needed.
Speaking to reporters before the G7 meeting, Steinbrueck said it was time to change the “rules of the game” rather than just allow a market correction to play out. It was up to governments to make sure their was “no repetition of this financial market crisis,” he said.
The ministers gathering came on the sidelines of the International Monetary Fund and World Bank’s traditional spring meetings this weekend.
The G7 statement welcomed as an “important step” a reform of the IMF’s voting system proposed last week, which would give a modest increase in say to developing countries after long and tough negotiations between the institution’s 185 members.
IMF members will vote on the proposal Saturday and World Bank head Robert Zoellick promised to begin his own reform process at the bank’s own gathering Sunday.
Ministers from 24 developing countries Friday said they would vote in favour of the IMF reform but added they would not be satisfied until developing and advanced economies had equal voting rights in both lending institutions.
The G7 also said central banks should adopt “robust arrangements” to inject liquidity into the financial system in times of crisis. The US Federal Reserve has already taken a series of unprecedented steps along with other central banks to make capital available to struggling investment banks.
US Treasury Department’s Under Secretary David McCormick on Wednesday said it was “critical” for the G7 to work together to bring stability back to the markets and deal with a slowdown of the global economy.
The IMF this week forecast that global growth would slow to 3.7 percent in 2008 from 4.9 percent in 2007, on the back of a predicted mild recession in the United States.
McCormick called the IMF’s projections “unduly pessimistic”.
Treasury Secretary Henry Paulson planned to host a dinner Friday evening with ministers that will also bring together private sector players from financial institutions.