Larry Elliott and Heather Stewart
Foreign Ministers, major banks hold meeting
Washington: Finance Ministers from the world’s leading industrial nations held crisis talks with City of London and Wall Street bankers on Friday night as they sought to bring an end to nine months of turmoil that have gripped the global markets.
Despite a rearguard action by U.S. and European banks to resist tighter regulation, the G7 made it clear immediate action to improve supervision of financial markets would be followed by measures to curb the ability of institutions to lend recklessly in the future.
Finance Ministers, central bank governors and regulators concluded that one cause of the crisis was that banks had increased their lending in the boom years, despite fears that a credit bubble was being inflated. Executives from Citigroup, Barclays, Deutsche Bank, Credit Suisse, Morgan Stanley, and Lehman Brothers were among those invited to dinner at the U.S. treasury.
Britain’s Finance Minister Alistair Darling said before the dinner that the G7 wanted to look at the capital adequacy rules governing banks. The proposal outcomes will force banks to hold bigger capital reserves in periods of strong growth so that their lending ability is curtailed. “I very much hope that we will sign up to take immediate action,” Mr. Darling said. “I think it is important to have an exchange of views with the banks, not only to get their assessment of what they think at the moment, but also to discuss the things that we might do to restore confidence.
“A number of banks have pleaded mea culpa. That’s OK, but this isn’t just an issue for a bank, or a financial institution and its shareholders — it’s a problem affecting people around the world.”
Mr. Darling said there was “huge public interest in making sure that we have the appropriate regulatory system.” He also called for a radical reform of the credit ratings agencies blamed for failing to identify the risky nature of the mortgage-backed assets at the heart of the sub-prime crisis.
Friday’s G7 meeting received a report from the Financial Stability Forum — a body made up of central banks and regulators — which called for an international college of supervisors to ensure better cross-border surveillance of big global banks and greater transparency from financial institutions about their balance sheets. — ©Guardian Newspapers Limited, 2008