G7 Credit Crunch to Intensify

Discussion in 'Wall St. News' started by Tracy McGreedy, Feb 10, 2008.

  1. Credit crunch will intensify, says G7 forum
    By Edmund Conway
    Last Updated: 12:33am GMT 10/02/2008

    Investors should prepare for the global credit crisis to get worse before it gets better, the world's leading financial policymakers warned this weekend.

    Japan is the next sub-prime flashpoint
    International markets face a painful "prolonged adjustment" and will, at best, take some time to recover from their recent trauma, says the Financial Stability Forum.

    The FSF - an influential crisis-management institution of top financial regulators and central bankers - issued yesterday's gloomy report on financial markets' prospects.

    The paper, produced on the fringes of the G7 finance ministers' meeting in Tokyo, will heighten concerns that both stock and credit markets will suffer further falls as banks face up to huge losses. The warning is given added weight by the fact that the FSF is the institution proposed by Gordon Brown to monitor markets to help prevent future crises.

    In its interim report on the crisis, the FSF said: "There remains a risk that further shocks may lead to a recurrence of the acute liquidity pressures experienced last year. It is likely that we face a prolonged adjustment, which could be difficult."

    It also warned that despite moves by central banks to cut interest rates, borrowing costs for consumers would be likely to remain high, as lenders attempt to repair their own balance sheets. It said this "could tighten credit constraints on a widening set of borrowers and thereby slow economic growth, which could further impair credit".

    The report also recommends: international banking regulations are beefed up to ensure banks increase the amount of liquidity they set aside in the future; ratings agencies improve their performance or face new regulation; and that central banks consider unifying their policies on the kind of collateral they accept from banks in return for cash.

    •The Bank of England is preparing to slash its growth forecasts in Wednesday's Inflation Report, warning that the economy faces two years of weakness, predict City experts.

    Despite this, the Bank is expected to remain stern on inflation - possibly indicating that it will not need to cut interest rates again until May.