09 February 2008

Statement of G-7 Finance Ministers and Central Bank Governors

Finance Ministers and Central Bank Governors of the G7 countries met in Tokyo to discuss among others the turmoil on the financial markets.

“We note that downside risks still persist”, the final statement says. “Authorities should encourage market-led improvements in transparency and disclosure practices”, the statement continues.

Commenting on the FSF interim report the G7 Ministers emphasise, in particular,

i) the importance of promoting prompt and full disclosure by financial institutions of their losses and of valuation of structured products;

ii) strengthening management of liquidity risks at financial institutions by accelerating the development of an internationally consistent approach by the Basel Committee on Banking Supervision;

iii) improving the understanding and disclosure of banks' and other financial institutions' exposure to off-balance sheet vehicles;

iv) enhancing underpinnings of the originate-to-distribute model by ensuring an appropriate incentive structure comes into play;

v) addressing potential conflicts of interest at credit rating agencies, and improving the information content of ratings to increase investors' awareness of the risks associated with structured products; and

vi) implementing the Basel II capital adequacy framework to enhance transparency and risk management. In addition, authorities should review, as necessary, their mandates, coordination mechanisms, and instruments to ensure measured and flexible responses to market stress, including arrangements for dealing with weak and failing financial institutions, both domestically and cross-border.

Looking to China Ministers are worried about its rising current account surplus and domestic inflation and “encourage accelerated appreciation of its effective exchange rate.”

With regard to sovereign wealth funds G7 Ministers look forward to the outcome of the “work under way at the IMF to identify best practices in such areas as institutional structure, risk management, transparency and accountability”, and also called on the OECD to identify investment policy best practices for countries that receive cross-border investment from SWFs.

Full statement

© Graham Bishop