When financial chiefs from the world's leading economic powers met in Washington last week, they painted a dimmer view of the global economy than they did at their February meeting in Tokyo and endorsed a plan aimed at stabilizing the financial markets hit by the U.S. subprime mortgage crisis.
One of the proposals in the plan written by the Financial Stability Forum, composed of central bankers and major financial regulators, is the establishment by the end of 2008 of an "international college of supervisors" to monitor major financial institutions. The plan also encourages institutions to disclose their holdings of risky securities and calls for improvement in the operation of credit-rating agencies. Central banks are called on to create a system that can flexibly supply funds to institutions if they get into trouble.
The plan is unlikely to immediately abate financial markets' uneasiness as U.S. major financial institutions will disclose their performance for the first quarter of 2008. Their capital will need to be increased. But it is uncertain whether sovereign wealth funds of oil producing countries, China and Singapore, which have been supplying capital, will be ready to cooperate further. These funds also have suffered from stock-market turbulence.