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Sunday, Feb. 10, 2008

FSF urges financial firms to reveal bottom lines

Staff writer

The Financial Stability Forum, an advisory panel to the G7 composed of central bankers and regulators, urged financial institutions Saturday to spit out the bottom line on the losses they've taken from the U.S. subprime mortgage loan crisis.

The FSF released an interim report the same day that was endorsed by the financial chiefs of the Group of Seven industrialized nations, who gathered in Tokyo earlier in the day.

"It's absolutely essential that financial institutions come to realistic and conservative valuations," said FSF Chairman Mario Draghi, who heads the Bank of Italy.

Without realistic evaluations of the losses, the capital troubled financial organizations need to survive will not be funded, said Draghi.

The FSF's report also noted that authorities need to strengthen measures to monitor financial organizations' risk management. But it also cautioned against implementing excessive regulations.

"Authorities should not pre-empt or hinder market-driven adjustments, but monitor them and add discipline where necessary," the report said.

Credit rating agencies should provide more information to investors on structured financial products and increase the quality of their assessments to improve accuracy, the report said.

Other policies the forum needs to consider in the future include ways of strengthening capital standards for banks, increasing transparency in financial institutions, and improving the ability of authorities to respond to crises, it said.

The FSF will submit its final report in April. The Basel-based forum, which comprises 26 nations, regions and international organizations, was formed in the wake of the Asian financial crisis in the late 1990s.

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The Japan Times

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