British chancellor urges G7 to co-ordinate bank regulation

Chancellor Wants G7 to Tighten Credit Rules

By Damian Reece
The Telegraph, London
Thursday, September 13, 2007

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/13/cndarl...

Europe's leading finance ministers, led by Alistair Darling, chancellor of the Exchequer, are to ask the G7 group of industrialised economies to examine a new, transatlantic regulatory agreement to help maintain global financial stability and avoid a repeat of the current liquidity crisis that has paralysed parts of the world's money markets.

Mr Darling has been holding talks already with his French, German, and Italian counterparts ahead of this weekend's Ecofin meeting of finance ministers in Portugal and intends to discuss a new regulatory environment with Hank Paulson, the US Treasury secretary, when he visits the UK on Monday.

Top of the agenda this weekend, however, will be how to make the banking system more transparent and open from a regulatory standpoint so banks can have more confidence in lending to each other. The discussions will also look at the regulation of banks' off-balance-sheet investment vehicles which lie at the heart of the current crisis. Questions will also be asked about the role of the credit rating agencies.

Mr Darling broke his silence on the current credit crisis in an exclusive interview with The Daily Telegraph.

Primary responsibility for handling the credit crisis lay with the banks, said Mr Darling, who needed to "ask more searching questions" about their lending behaviour.

He was at pains to reassure the City that he was not proposing draconian rules along the lines of America's Sarbanes-Oxley legislation, passed in the wake of the Enron and WorldCom scandals. But he insisted that there was a wider interest in maintaining global financial stability that required a response from governments.

"We are working with the Americans and particularly with the French, with Germany and Italy in advance of this weekend's Ecofin meeting. What we're aiming to do is ask the G7 financial stability board to look at a number of things that we think might help.

"Key is to make the system more open and more transparent. My starting point is that primary responsibility for making sure people understand what the nature of the risk is must lie with the institution itself. The government can't stand on the shoes of a bank or institution. They need to understand that. And perhaps they need to ask themselves more searching questions than some have done in the past as to who exactly was the money lent to and what was the likelihood that they would be able to maintain the repayments and ultimately repay the sum due."

He cautioned that anything that was agreed internationally between regulators would take time to be implemented and must also be designed to avoid the negative effects of over-regulation.

Short-term money markets have seized up as banks hoard cash and refuse to lend to each other. Money-market interest rates have started to rise and have already hit consumers and businesses.

"What we'll be saying at Ecofin, at the informal meeting on Friday, is that what we want is concerted action, hopefully, at a European level at Ecofin," said Mr Darling. "But beyond that when we discuss these things with the Americans at the IMF in the autumn [we will discuss] that we need to get the G7 to be able to tighten these things up."

Mr Darling said banks were not about to be forced to disclose commercially sensitive information that might benefit competitors but what politicians needed to look at was "whether or not the regulatory system should say to the institutions it regulates, 'these are the requirements and the things they ought to be doing.'"

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