Lisbon trio calls for more market transparency

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Britain, France and Germany issued a joint call for greater market transparency and better risk management at a European Union summit in Lisbon, in advance of a G-7 meeting of EU finance ministers and central bank governors in Washington DC.

In the latest in a series of statements from EU leaders concerning the financial instability caused by the US subprime crisis, the three leaders called for EU finance ministers to examine whether regulatory action or other measures were necessary in fields such as disclosure of information on securitised debt, assessment of illiquid assets and their significance for risk management, and banks’ off-balance-sheet risks.

The joint statement on market transparency, signed by British prime minister Gordon Brown, French premier Nicholas Sarkozy and German chancellor Angela Merkel, states: “The primary responsibility for managing risk is, and must remain, with individual financial institutions and investors. This needs to be backed up by strong national regulatory frameworks.”

EU finance ministers were asked to report by next March or April on issues such as cross-border co-operation and crisis management, the role of credit rating agencies, and companies’ use of these agencies.

Following on from the Lisbon meeting, the joint statement from the finance ministers and central bankers at the G7 meeting in Washington warns that, although the market is improving after the recent global market turbulence, uneven conditions are likely to persist for some time and will require close monitoring.

Finance ministers and central bankers all called on the Financial Stability Forum (FSF) to “analyse the underlying causes of the turbulence and offer proposals in the areas of liquidity and risk management; accounting and valuation of financial derivatives; role, methodologies and use of credit rating agencies in structured finance; and basic supervisory principles of prudential oversight, including the treatment of off-balance-sheet vehicles”.