In April 2008, the Financial Stability Forum (FSF) submitted to G7 Finance Ministers and Central Bank Governors a comprehensive set of recommendations for addressing the weaknesses that have produced the present crisis and for strengthening the financial system going forward. The Report on Enhancing Market and Institutional Resilience drew on an extensive body of work by national authorities and the main international supervisory, regulatory, and central bank bodies.
The guiding principles of this work is to recreate a financial system that operates with less leverage, is immune to the set of misaligned incentives at the root of this crisis, where prudential and regulatory oversight is strengthened, and where transparency allows better identification and management of risks. Since late March, strains in the financial system have deepened to unprecedented levels, necessitating extraordinary official sector emergency measures. In the immediate term, stabilizing financial systems remains the priority of all concerned.
Despite these pressures, a substantial amount of work has been underway to take forward the policy development necessary to implement the FSF Report’s recommendations. This work is proceeding well and in a coordinated fashion. The actions endorsed by the G7 for implementation by end-2008 will see concrete results by then. These include, as detailed in this report, further measures to strengthen standards and oversight of bank capital and liquidity, risk management standards in financial institutions, valuation practices and accounting standards.
We will continue to oversee and coordinate implementation of the recommendations in a manner that preserves the advantages of integrated global financial markets and a level playing field across countries. We will assess, accelerate and, where needed, adjust our work in the light of recent events. We will also deepen the interaction on the recommendations with financial authorities in other major economies. Continue reading