Top Economic Powers Endorse Plan to Try to Avert Financial Crises
Byline: Jeannine Aversa
WASHINGTON (AP) -- Finance officials from the world's top economic powers endorsed a plan Friday aimed at preventing another financial crisis like the credit and mortgage debacles that erupted in the United States and quickly sent tremors around the globe.
"Rapid implementation" of the plan "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," the G7 officials said in a joint statement.
US Treasury Secretary Henry Paulson and Ben Bernanke, chairman of the U.S. central bank, the Federal Reserve, hosted the Group of Seven discussions, where officials embraced a plan that would seek to increase the openness, or transparency, of financial markets and to sharpen regulators' responses to urgent financial problems.
Besides the United States, the other members of the G7 are Japan, Germany, Britain, France, Italy and Canada. Friday's action preceded the weekend meetings of the 185-nation International Monetary Fund and the World Bank.
Risks to the United States and the global economy have intensified since finance officials from the Group of Seven countries last gathered in Washington last October. Many economists now believe the United States has fallen into a recession, and the odds of a worldwide downturn have risen sharply to one in four, according to the IMF, a global financial firefighting institution.
Even as the financial officials talked about the best ways to battle future financial emergencies, Wall Street took another plunge. The Dow Jones tumbled more than 250 points.
"Given the significant short-term downside risks, we are taking action," Paulson said of the G7's decision to adopt the plan.
"There may be more bumps in the road," he warned.
In the United States, where credit troubles sprang forth with a vengeance last August and quickly spread financial turmoil worldwide, the damage is sorely felt. Foreclosures have surged to record highs, job losses in the first three months of this year have neared the staggering quarter-million mark and financial companies have racked up billions of dollars in losses. The once mighty Bear Stearns, the fifth-largest investment bank in the United States, crashed, prompting a takeover by JP Morgan in a controversial deal backed by the Federal Reserve.
Worldwide financial losses could approach $ 1 trillion (euro630 billion) over two years, the IMF said this week.
The Financial Stability Forum, a group that includes central bankers and major financial regulators from around the world, developed the plan adopted by the G7. The forum is headed by Mario Draghi, chief of Italy's central bank, who presented his group's findings to the other G7 officials during their private meeting.
The plan is designed to make financial markets less secretive and improve supervision, which in theory would help prevent a repeat of the current financial debacles.
It calls for strengthening oversight to make sure financial companies have sufficient capital, cash and risk-management practices to handle problems. …