Central Bank Governors

Group of Seven: Finance Ministers

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Yale University EliScholar – A Digital Platform for Scholarly Publishing at Yale YPFS Documents (Series 1) Browse by Media Type 4-11-2008 Statement of G-7 Finance Ministers and Central Bank Governors Group of Seven: Finance Ministers Central Bank Governors Follow this and additional works at: https://elischolar.library.yale.edu/ypfs-documents Recommended Citation Group of Seven: Finance Ministers and Central Bank Governors, "Statement of G-7 Finance Ministers and Central Bank Governors" (2008). YPFS Documents (Series 1). 7394. https://elischolar.library.yale.edu/ypfs-documents/7394 This Document is brought to you for free and open access by the Browse by Media Type at EliScholar – A Digital Platform for Scholarly Publishing at Yale. It has been accepted for inclusion in YPFS Documents (Series 1) by an authorized administrator of EliScholar – A Digital Platform for Scholarly Publishing at Yale. For more information, please contact elischolar@yale.edu. 6/4/2020 Statement of G-7 Finance Ministers and Central Bank Governorshttps://www.treasury.gov/press-center/press-releases/Pages/hp919.aspx 1/2U.S. DEPARTMENT OF THE TREASURYPress Center Statement of G-7 Finance Ministers and Central Bank Governors4/11/2008HP-919 Washington, DC – We met today amid ongoing challenges to the world economy and international financial system.The global economy continues to face a difficult period. We remain positive about the long-term resilience of our economies, but near-termglobal economic prospects have weakened. While economic conditions differ in our countries, downside risks to the outlook persist in viewof the ongoing weakness in U.S. residential housing markets, stressed global financial market conditions, the international impact of highoil and commodity prices, and consequent inflation pressures. The performance of emerging markets has been a bright spot, but thesecountries as well are not immune from global forces.The turmoil in global financial markets remains challenging and more protracted than we had anticipated. In the context of a weakereconomic outlook, financial markets confront the interrelated issues of: re-pricing of risk and significant de-leveraging; managingcounterparty risks; accommodating balance sheet adjustments; raising capital; improving the liquidity and functioning of key markets. Wewelcome efforts by many financial institutions to improve disclosure of exposures to structured products and related risks, and raisesignificant new capital.We reaffirmed our strong commitment to continue working closely together to restore sustained growth, maintain price stability, and ensurethe smooth and orderly functioning of our financial systems. We welcome the coordination by major central banks to address liquiditypressures in funding markets and recognize the importance of their coordinated actions to address disruptions in global financial markets.In particular, the recent steps taken by some central banks to expand access to central bank lending facilities and expand the range ofcollateral that they will accept is providing liquidity to financial institutions and helping to support improved market functioning. In addition,we welcome other measures that have been taken including monetary and fiscal policy that aim to give support to underlying economicactivity and ensure price stability. Each of us remains committed to taking action, individually and collectively as appropriate, consistentwith our respective domestic circumstances.We reaffirm our shared interest in a strong and stable international financial system. Since our last meeting, there have been at timessharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability. Wecontinue to monitor exchange markets closely, and cooperate as appropriate. We welcome China's decision to increase the flexibility of itscurrency, but in view of its rising current account surplus and domestic inflation, we encourage accelerated appreciation of its effectiveexchange rate.Last fall we tasked the Financial Stability Forum (FSF) for a report identifying the underlying causes and weaknesses in the internationalfinancial system that contributed to the financial market turmoil. We thank Mario Draghi, the chairman of the Financial Stability Forum, andFSF members, for the report that sets out detailed recommendations to enhance market and institutional resilience. We, the G-7, stronglyendorse the report and commit to implementing its recommendations. Rapid implementation of the FSF report will not only enhance theresilience of the global financial system for the longer term but should help to support confidence and improve the functioning of themarkets.The FSF report presents a specific and substantive set of recommendations across five major areas. We have identified the followingrecommendations among the immediate priorities for implementation within the next 100 days:Firms should fully and promptly disclose their risk exposures, write–downs, and fair value estimates for complex and illiquid instruments. We strongly encourage financialinstitutions to make robust risk disclosures in their upcoming mid-year reporting consistent with leading disclosure practices as set out in the FSF's report.The International Accounting Standards Board (IASB) and other relevant standard setters should initiate urgent action to improve the accounting and disclosure standards for off-balance sheet entities and enhance its guidance on fair value accounting, particularly on valuing financial instruments in periods of stress.Firms should strengthen their risk management practices, supported by supervisors' oversight, including rigorous stress testing. Firms also should strengthen their capitalpositions as needed.By July 2008, the Basel Committee should issue revised liquidity risk management guidelines and IOSCO should revise its code of conduct fundamentals for credit ratingagencies.We endorse the following FSF proposals for implementation by end-2008: 6/4/2020 Statement of G-7 Finance Ministers and Central Bank Governorshttps://www.treasury.gov/press-center/press-releases/Pages/hp919.aspx 2/2 Strengthening prudential oversight of capital, liquidity, and risk management: The Basel II capital framework needs timely implementation. The Basel Committee should raisecapital requirements for complex structured credit instruments and off-balance sheet vehicles, require additional stress testing, and enhance their monitoring.Enhancing transparency and valuation: The Basel Committee should issue further guidance to enhance the supervisory assessment of banks' valuation processes to strengthendisclosures for off-balance sheet entities, securitization exposures, and liquidity commitments.Changing the role and uses of credit ratings: Investors need to improve their due diligence in the use of ratings. Credit rating agencies should take effective action (consistentwith IOSCO's revised code of conduct) to address the potential for conflicts of interest in their activities, clearly differentiate the ratings for structured products, improve theirdisclosure of rating methodologies, and assess the quality of information provided by originators, arrangers, and issuers of structured products.Strengthening the authorities' responsiveness to risk: Supervisors and central banks should further strengthen cooperation and exchange of information, including theassessment of financial stability risks. It is important that an "international college of supervisors" be established for each of the largest global financial institutions. Marketauthorities also should act cooperatively and swiftly to investigate and penalize fraud, market abuse, and manipulation.Implementing robust arrangements for dealing with stress in the financial system: Central banks should be able to supply liquidity effectively during financial system stress, andauthorities should review and where necessary strengthen their arrangements for dealing with weak and failing banks, domestically and cross-border.The Basel II capital framework needs timely implementation. The Basel Committee should raise capital requirements for complex structured credit instruments and off-balance sheetvehicles, require additional stress testing, and enhance their monitoring. : The Basel Committee should issue further guidance to enhance the supervisory assessment of banks'valuation processes to strengthen disclosures for off-balance sheet entities, securitization exposures, and liquidity commitments. : Investors need to improve their due diligence in theuse of ratings. Credit rating agencies should take effective action (consistent with IOSCO's revised code of conduct) to address the potential for conflicts of interest in their activities,clearly differentiate the ratings for structured products, improve their disclosure of rating methodologies, and assess the quality of information provided by originators, arrangers, andissuers of structured products.: Supervisors and central banks should further strengthen cooperation and exchange of information, including the assessment of financial stability risks. Itis important that an "international college of supervisors" be established for each of the largest global financial institutions. Market authorities also should act cooperatively and swiftly toinvestigate and penalize fraud, market abuse, and manipulation. : Central banks should be able to supply liquidity effectively during financial system stress, and authorities should reviewand where necessary strengthen their arrangements for dealing with weak and failing banks, domestically and cross-border.We ask the FSF and its working group to monitor actively the implementation of the report's recommendations. It is important that memberbodies of the FSF, including the Basel Committee, IOSCO, the IASB, and the Joint Forum, accelerate their timetables of work to concludetheir efforts by end-2008 and that the recommendations of the FSF be fully and effectively implemented. We look forward to an update atthe Osaka meeting in June and a comprehensive follow-up report by the FSF at our meeting in the fall. We welcome the strengthenedcooperation between the FSF and IMF, which should enhance the early warning capabilities of key risks to financial stability.We also welcome efforts by private-sector participants to develop proposals to contribute to a better functioning of the financial system.The current financial market turmoil also has raised broad policy issues about the appropriate regulatory frameworks of our financialsectors. We have reaffirmed the importance of reviewing regulatory frameworks to consider whether changes are necessary to ensure thatour financial systems are as efficient and stable as possible in the future.We reaffirm the important role for the IMF in securing global financial stability. In this light we endorse the significant progress on IMFreform:We welcome the agreement on quota and voice reform in the IMF as an important step to recognize the greater global weight of dynamic economies, many of which areemerging markets, and increasing the voice of low income countries.We reiterate the importance we place on the IMF's new framework for surveillance, including for exchange rates, and urge its firm and even-handed implementation.We welcome progress toward putting the IMF's finances on a more sustainable footing, including a $100 million annual reduction in administrative expenses. Ongoing budgetdiscipline will be required. We support new sources of income, including an endowment financed by a limited sale of IMF gold.Taken together, these important reforms will boost the IMF's legitimacy, effectiveness, and credibility.Upholding open trade and investment regimes is critical to realizing global prosperity and fighting protectionism. We highlight the urgentneed for a successful conclusion to the Doha Development Round. We also commend the OECD work on open investment and the IMF'scommitment to deliver a set of best practices for Sovereign Wealth Funds by the IMF Annual Meetings in October. The policy principlesput forward by Abu Dhabi, Singapore, and the United States should be helpful inputs into these processes. -30-

Statement of G-7 Finance Ministers and Central Bank Governors

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Statement of G-7 Finance Ministers and Central Bank Governors

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