G7 finance ministers discuss market stability

FINANCE MINISTERS of the Group of Seven (G7) industrialised countries were meeting in Washington yesterday to work out how to prevent another financial crisis amid deepening gloom about the US economy. Denis Staunton inWashington

The meeting came ahead of this weekend's International Monetary Fund (IMF) spring meeting which is expected to be dominated by concerns over the US economy and the global credit crisis.

The ministers from the US, Germany, France, Italy, Britain, Japan and Canada were expected to adopt the recommendations of the Financial Stability Forum (FSF) led by Bank of Italy governor Mario Draghi for improving stability in the financial system.

A G7 official said, in a communique due to be released late last night, that the ministers would be more downbeat about the US economy than they were in February, but would avoid using the word recession.

"It won't be alarmist or use the R-word," the official said.

Mr Draghi's report calls for greater disclosure, more oversight and improved risk management by the world's banks and investment institutions, and more caution in relying on credit ratings agencies.

The report says that banks and other financial institutions should give more information about their assets, particularly off-balance sheet holdings, and calls for greater safety measures, including a requirement that banks should hold more capital and cash reserves.

Britain's chancellor of the exchequer, Alistair Darling, said before yesterday's meeting that the report's recommendations should be implemented without delay to prevent a future crisis and boost confidence in the financial system.

"These are uncertain times. I want to make the case for urgent action by the world's major economies to deal with what is the biggest economic shock since the Great Depression."

The three euro-zone finance ministers are concerned about the soaring value of the euro against the dollar, but it remained unclear last night if the G7 ministers would make a clear statement on currency movements.

The fall of the dollar and a sharp rise in oil prices are fuelling fears of inflation in the US. High oil prices are also depressing US consumer spending as high prices at the pump leave householders with less to spend on other items.

After the meeting, top international bankers were joining G7 leaders to discuss the credit crisis at a first-of-its-kind dinner. Joseph Ackermann of Deutsche Bank, Win Bischoff of Citigroup, Bob Diamond of Barclays, John Mack of Morgan Stanley, Richard Fuld of Lehman Brothers and Larry Fink of Blackrock were among the private-sector leaders due to attend the meeting.

Others included Brady Dougan of Credit Suisse, Herbert Allison of TIAA-CREF, Yasuhiro Sato of Mizuho and Richard Waugh of Scotia Bank.

A senior G7 official said the purpose of the dinner was to give the bankers the opportunity to set out their perspective on what was happening in financial markets and to have a candid exchange of views with policymakers.

It is the first time the G7 has invited private-sector executives to take part in its deliberations. - (Additional reporting: Financial Times service)