Financial regulators and central bankers on Saturday demanded more clarity from banks on their risk exposure in face of the current credit market upheaval.
In a statement at the end of a two-day meeting in Rome, the Financial Stability Forum (FSF) - a global grouping of banking, insurance and markets regulators - said financial institutions should also refine their valuations of structured credit activities and poorly performing assets.
"While the necessary deleveraging has been ongoing since last summer, the process is being complicated by a lack of transparency and valuation difficulties from some credit instruments," the FSF said. "Financial institutions should continue enhancing their disclosures of risk exposures," it said.
Banks, securities firms and financial guarantors should keep replenishing capital levels where necessary, the FSF said, adding that authorities in the main financial centres were in continuous contact and closely monitoring developments.
"Central banks have provided liquidity to address market pressures, both individually and in concert, and will continue to do so as long as needed," the statement said. "Authorities will also act co-operatively and swiftly to investigate and penalise market abuse or manipulation." In Rome, the FSF discussed the report that it will deliver at the G7 meeting of finance ministers and central bankers in Washington next month where it will recommend actions to deal with the current credit crisis and learn its lessons.
It said the recommendations would concern capital, liquidity and risk management, transparency and valuation practices, the role and use of credit ratings, and the ability of financial authorities to respond to market turmoil. Turning to hedge funds, the FSF said it would welcome regular reports on the adoption of best-practice standards by the industry. It said such standards had already been developed by the UK-based Hedge Fund Working Group and will be released shortly by a similar US-based group.
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