The world's major industrialized nations have passed a plan aimed at easing the global credit crisis at a meeting in Washington.
The Group of Seven warned Friday the global economic outlook was weakening and said banks should adopt steps to "fully and promptly" reveal their risk exposure due to the current financial market turmoil within 100 days.
The world economy "continues to face a difficult period ... (and) near-term economic prospects have weakened," G7 finance ministers and central bank governors said in a statement after their meeting here.
"The turmoil in global financial markets remains challenging and more protracted than we had anticipated," they said.
"While economic conditions differ in our countries, downside risks to the outlook persist in view of the ongoing weakness in US residential housing markets, stressed global financial market conditions, the international impact of high oil and commodity prices, and consequent inflation pressures."
The G7 finance chiefs also noted that since their last meeting in February, there have been "sharp fluctuations" in major currencies and members "continue to monitor exchange markets closely and cooperate as appropriate."
They said they had also approved a Financial Stability Forum (FSF) report on ways to prevent a repetition of the financial crisis and had identified several recommendations for implementation "within the next 100 days."
"Rapid implementation of the FSF report will not only enhance the resilience of the global financial system for the longer term but should help to support confidence and improve the functioning of the markets," they said.
Ranked first, "firms should fully and promptly disclose their risk exposures, write-downs, and fair value estimates for complex and illiquid instruments.
"We strongly encourage financial institutions to make robust risk disclosures in their upcoming mid-year reporting consistent with leading disclosure practices as set out in the FSF’s report."
Among other measures for early implementation, the G7 said the International Accounting Standards Board (IASB) and standard-setters should "initiate urgent action to improve the accounting and disclosure standards for off-balance sheet entities."
It should also enhance its guidance on fair value accounting, particularly on valuing financial instruments in periods of stress.
Off-balance sheet entities have been blamed for concealing the true extent of the banks' exposure to the US subprime home-loan crisis and the risks involved in assets that could not be fairly valued in times of distress.
"Firms should strengthen their risk-management practices, supported by supervisors’ oversight, including rigorous stress testing. Firms also should strengthen their capital positions as needed," the G7 said.
"We strongly endorsed the (FSF) report and commit to implement its recommendations ... We reaffirm our shared interest in a strong and stable international financial system," it said.
In its report, the FSF said watchdogs around the world should improve their "responsiveness to risks," and "robust arrangements" should be put in place to deal with stress in the global financial system.
"To restore confidence in the soundness of markets and instutitions, it is essential that steps are taken now to enhance the resilience of the global system," the FSF urged.
The G7 finance chiefs noted that since their last meeting in February, there have been "sharp fluctuations" in major currencies and members "continue to monitor exchange markets closely and cooperate as appropriate."
Major central banks have coordinated multibillion-dollar cash injections into stressed financial markets in recent months and the dollar has plunged to record lows.
"We reaffirmed our strong commitment to continue working closely together to restore sustained growth, maintain price stability, and ensure the smooth and orderly functioning of our financial systems."
Date created : 2008-04-12