Paulson, Bernanke and Other World Finance Officials Seek Ways to Respond to Financial Crisis.
The world's top financial officials, shaken by a credit crisis that has roiled markets around the world, are working on regulatory reforms that they hope will restore confidence in the markets. The plan they have under consideration seeks to boost transparency, strengthen the role of credit rating agencies and bolster cooperation between regulatory authorities in major countries.
Those proposals will be explored Friday when finance ministers and central bank presidents from the world's seven richest industrial countries meet in Washington for discussions to be led by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.
The discussions, which will also include the top finance officials of Japan, Germany, Britain, France, Italy and Canada, are taking place in advance of the weekend meetings of the 185-nation International Monetary Fund and its sister lending institution, the World Bank.
The financial officials are gathering eight months after a credit crisis, which began in the United States with rising defaults on subprime mortgages, has now spread around the globe. It has caused major financial institutions to declare billions of dollars in losses and brought Bear Stearns, the fifth largest investment bank in the United States, to the brink of bankruptcy.
The IMF said in reports this week that worldwide losses could approach $1 trillion over the next two years and the turmoil had already pushed the United States, the world's largest economy, into a recession and raised the risks of a global downturn to one in four. Faced with that gloomy assessment, global financial leaders are certain to do everything they can during the next three days of meetings to demonstrate that they are on top of the situation.
Paulson told an audience of bankers on Thursday that while "the risks continue to be to the downside" he believe the U.S. economy would receive a significant boost when 130 million households begin spending rebate checks that the government will start mailing out next month. He said the extra consumer spending generated should be enough to create 500,000 to 600,000 extra jobs this year.
Bernanke told an audience in Richmond, Va., on Thursday that regulators must move ahead on ways to prevent future crises from occurring at the same time that they battle the current one. "We do not have the luxury of waiting for markets to stabilize before we think about the future," he said. Bernanke said that the "financial distress that we are seeing now is among the most severe episodes of the post-war era."
But Bernanke, who spent his academic career studying the causes of the Great Depression, said it was nowhere near as severe as that downturn nor would it be because the Fed has learned from the mistakes policymakers made in the 1930s.
In addition to their discussions among themselves, the Group of Seven finance officials will hold a dinner Friday night that will include executives of some of the world's biggest financial companies to get their ideas on what more should be done.
The plan the G-7 officials are working on was developed by the Financial Stability Forum, a group that includes central bankers and major financial regulators from around the world. The panel is headed by Mario Draghi, head of Italy's central bank, who will present his group's findings to the other G-7 officials during their Friday afternoon closed-door talks at the Treasury Department.
Those recommendations include proposals to make financial markets less secretive and improve supervision. One suggestion is to have banks, securities firms and other financial institutions disclose their holdings of securities backed by subprime mortgages, the risky debt instruments which were at the heart of the crisis in the United States.
The forum's recommendations focus on such key areas as getting financial firms to strengthen risk management procedures, increasing transparency including improved transparency for off-balance sheet investments, improving the operation of credit rating agencies, increasing cooperation among financial supervisors and strengthening the ability of central banks to provide emergency cash at times when markets are under strain.
Dominique Strauss-Kahn, the head of the IMF, who will participate in the G-7 talks, said that central banks should standardize their procedures for injecting liquidity into markets. He said that the Fed, the European Central Bank and other central banks had so far done a good job of injecting needed funds into the system but he said that it would have been used to have more standardized ways of responding.
The world's top financial officials, shaken by a credit crisis that has roiled markets around the world, are working on regulatory reforms that they hope will restore confidence in the markets. The plan they have under consideration seeks to boost transparency, strengthen the role of credit rating agencies and bolster cooperation between regulatory authorities in major countries.
Those proposals will be explored Friday when finance ministers and central bank presidents from the world's seven richest industrial countries meet in Washington for discussions to be led by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke.
The discussions, which will also include the top finance officials of Japan, Germany, Britain, France, Italy and Canada, are taking place in advance of the weekend meetings of the 185-nation International Monetary Fund and its sister lending institution, the World Bank.
The financial officials are gathering eight months after a credit crisis, which began in the United States with rising defaults on subprime mortgages, has now spread around the globe. It has caused major financial institutions to declare billions of dollars in losses and brought Bear Stearns, the fifth largest investment bank in the United States, to the brink of bankruptcy.
The IMF said in reports this week that worldwide losses could approach $1 trillion over the next two years and the turmoil had already pushed the United States, the world's largest economy, into a recession and raised the risks of a global downturn to one in four. Faced with that gloomy assessment, global financial leaders are certain to do everything they can during the next three days of meetings to demonstrate that they are on top of the situation.
Paulson told an audience of bankers on Thursday that while "the risks continue to be to the downside" he believe the U.S. economy would receive a significant boost when 130 million households begin spending rebate checks that the government will start mailing out next month. He said the extra consumer spending generated should be enough to create 500,000 to 600,000 extra jobs this year.
Bernanke told an audience in Richmond, Va., on Thursday that regulators must move ahead on ways to prevent future crises from occurring at the same time that they battle the current one. "We do not have the luxury of waiting for markets to stabilize before we think about the future," he said. Bernanke said that the "financial distress that we are seeing now is among the most severe episodes of the post-war era."
But Bernanke, who spent his academic career studying the causes of the Great Depression, said it was nowhere near as severe as that downturn nor would it be because the Fed has learned from the mistakes policymakers made in the 1930s.
In addition to their discussions among themselves, the Group of Seven finance officials will hold a dinner Friday night that will include executives of some of the world's biggest financial companies to get their ideas on what more should be done.
The plan the G-7 officials are working on was developed by the Financial Stability Forum, a group that includes central bankers and major financial regulators from around the world. The panel is headed by Mario Draghi, head of Italy's central bank, who will present his group's findings to the other G-7 officials during their Friday afternoon closed-door talks at the Treasury Department.
Those recommendations include proposals to make financial markets less secretive and improve supervision. One suggestion is to have banks, securities firms and other financial institutions disclose their holdings of securities backed by subprime mortgages, the risky debt instruments which were at the heart of the crisis in the United States.
The forum's recommendations focus on such key areas as getting financial firms to strengthen risk management procedures, increasing transparency including improved transparency for off-balance sheet investments, improving the operation of credit rating agencies, increasing cooperation among financial supervisors and strengthening the ability of central banks to provide emergency cash at times when markets are under strain.
Dominique Strauss-Kahn, the head of the IMF, who will participate in the G-7 talks, said that central banks should standardize their procedures for injecting liquidity into markets. He said that the Fed, the European Central Bank and other central banks had so far done a good job of injecting needed funds into the system but he said that it would have been used to have more standardized ways of responding.
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