Corporate Governance

KEYWORD: CONFIDENCE

By Susan Weiswasser

A report just released by a working group of the Financial Stability Forum ? an international group of regulators, supervisors and central banks created in 1999 on recommendation of the Group of Seven nations -- warns of a long period of adjustment in the financial markets in spite of a slight easing of strains brought on by the subprime mortgage crisis. The group reported these interim findings as the G7 met this past weekend. Treasury Secretary Henry Paulson attended the meeting and agreed with the group?s findings stating that ??[w]hile financial markets are improving, it will take time to work through the current financial turmoil.? 

While the report does not have specific recommendations ? those are expected in the final draft due April 2008 ? it does provide the group?s opinions on the underlying causes of the crisis and suggestions of areas where concerned institutions should focus in order to help stabilize markets.

The report?s main pronouncement is undeniable: ?rebuild confidence in the creditworthiness and robustness of financial institutions.? To do that, market participants and policymakers must focus on ensuring that pricing of assets is realistic; disclosure of risks is thorough; and capital buffers are adequate to deal with potentially unforeseen risks. In addition, the report emphasizes the importance of strengthening ?incentives that promote institutional market discipline.? The report takes a cautious approach to the idea of more regulation, suggesting that while some may be necessary, authorities ?need to be careful that their efforts to correct one market distortion do not create a new one.? You can read the interim report here.

Full post as published by PomTalk on February 11, 2008 (boomark / email).