Friday, April 11, 2008

One step closer to an enhanced Basel II.

The Financial Stability Forum (FSF) today presented a report to the G 7 finance ministers, recommending actions for achieving strong and resilient financial markets. The FSF is a body that consists of Central Bank Governors, international financial institutions, regulatory bodies and others with a specific purpose to promote financial stability across the world. The FSF was formed in 1999 at the behest of the Finance Ministers and Central Bank Governors of the G 7 countries.

The G-7 includes the U.S., the United Kingdom, France, Germany, Italy, Canada and Japan.

The reportpresented to the G 7 ministers recommends specific actions relating to capital and liquidity requirements, risk management, strengthening disclosure requirements under Basel II as well as standards for off balance sheet vehicles and valuations. The report also addresses the role and use of credit rating agencies. Rating agencies should distinguish between ratings on structured products versus those on bonds. Enhanced information disclosure will also be required from institutions about securitised products and their underlying assets.

Addressing the need for a swift response by authorites to changes in the environment, the report also recommended that a supervisory body will be put in place by end 2008 'for each of the largest global financial institutions.'

The FSF member firms also include the Bank for International Settlements(BIS). The standing committees at the BIS supports central banks by providing guidance and recommendations on monetary and financial matters. One of these committees includes the Basel Committee on Banking Supervision. With the FSF having recommended changes to capital and liquidity requirements in its report to the G 7 ministers, enhancements in Basel II should be expected before the end of the year.

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