April 10, 2008 / 11:40 PM / 10 years ago

FACTBOX-Range of proposals offered to keep banks sound

April 10 (Reuters) - Several groups and agencies have recommended ways to ensure that the global financial system and banks are sound in the wake of the credit crisis triggered by subprime mortgage lending and securitization. They include the following:


The FSF, a group that includes central bankers and global regulators, is expected to recommend that financial institutions improve risk management by establishing larger buffers for capital and liquidity needs. It is also expected to make the following recommendations to the Group of Seven finance chiefs:

* The global Basel Committee on Banking Supervision should impose higher capital requirements for banks’ off-balance sheet securities and complex instruments.

* Central banks should take steps to ensure they can effectively offer liquidity when the financial system is under stress and strengthen plans for dealing with weak or failing banks, whether they are domestic or cross-border institutions.

* Central banks and supervisors should meet more frequently and exchange more information to ensure greater awareness of cross-border risks.


The IIF, a global financial services lobbying group, urged tougher voluntary industry standards on a number of issues such as risk management and liquidity management:

* Banks’ exposure to conduits and off-balance-sheet vehicles should be covered in liquidity planning.

* Banks should pay bonuses to high-ranking staff based on long term performance rather than rewarding windfalls

* Banks should improve stress-testing practices to cover combinations of all possible risks.

* A new market monitoring group of financial experts should be created to act as early-warning system for future periods of market stress.


Chairman Barney Frank, a Massachusetts Democrat, last month recommended the U.S. Federal Reserve Board or another new agency monitor all risk in the financial system and intervene when necessary.


The U.S. Treasury Department in March proposed giving the Fed more power to oversee market stability and systemic risks from non-bank institutions like Wall Street investment banks. The recommendation was part of a wide-ranging set of proposals to restructure financial services regulation and help U.S. markets remain competitive.


A Senate aide said Senate Banking Committee Chairman Christopher Dodd thinks that when investment banks access the Fed’s discount window they should have to adhere to some of the same regulations applied to commercial banks.


Finance Minister Jim Flaherty, a Conservative, said banks should adopt common disclosure standards and improve transparency. Flaherty pointed to Canada’s market-led plan to thaw the asset-backed commercial paper market as an example for other countries dealing with frozen credit markets.

For a related story, click on [ID:nN10328382] (Reporting by Rachelle Younglai and Kevin Drawbaugh; Editing by Braden Reddall)

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