WASHINGTON, DC – The G-7 group of finance ministers and central bankers from the world’s most development countries have reached an agreement to work together to help stabilise the financial markets and restore the flow of credit, to support global economic growth.
The group agreed to five main principles.
1. Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.
2. Take all necessary steps to unfreeze the credit and money markets, and ensure banks and other financial institutions have broad access to liquidity and funding.
3. Ensure banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.
4. Ensure that the countries’ respective national deposit insurance and guarantee programmes are robust and consistent so that retail depositors will continue to have confidence in the safety of their deposits.
5. Take action, where appropriate, to restart the secondary markets for mortgages and other securitised assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high-quality accounting standards are necessary.
These were adopted with the proviso that any actions taken should be done in ways that protect taxpayers and avoid potentially damaging effects on other countries.
A statement released after the meeting reads: “We will use macroeconomic policy tools as necessary and appropriate. We strongly support the IMF's critical role in assisting countries affected by this turmoil. We will accelerate full implementation of the Financial Stability Forum recommendations and we are committed to the pressing need for reform of the financial system. We will strengthen further our co-operation and work with others to accomplish this plan.”
In a prepared statement, US Treasury secretary Henry Paulson said: “At today's meeting of the G-7 finance ministers and central bank governors, we finalised an aggressive action plan to address the turmoil in global financial markets and the stresses on our financial institutions. This action plan provides a coherent framework that will direct our individual and collective policy steps to provide liquidity to markets, strengthen financial institutions, protect savers, and enforce investor protections.
“Central banks from around the world have acted together to provide additional liquidity for financial institutions, taking the necessary steps to support the global economy. The Federal Reserve has established swap lines with nine central banks to reduce pressures in global short-term US dollar markets. Additionally, the US Treasury implemented a temporary guaranty programme for the US money market mutual fund industry.”
He also stated that the G-7 and others will continue to work together through the Financial Stability Forum (FSF) to ensure a comprehensive, international regulatory response to the financial market turmoil.