Wednesday, January 30, 2008

Brown Seeks Support for Increasing Bank Transparency

(Bloomberg) -- Prime Minister Gordon Brown will seek support from France, Germany and Italy for rules that would force banks to increase the transparency of their operations, part of Britain's response to a global economic slump.

Brown will push leaders including German Chancellor Angela Merkel and French President Nicolas Sarkozy for Europe-wide rules that would require banks to give more detail about their off-balance-sheet risks and for increased regulation of ratings services at a meeting in London today.

``There is a lack of openness, banks put rather too much off the balance sheet and people depend too much on credit rating agencies,'' U.K. Chancellor of the Exchequer Alistair Darling told BBC Radio 4 today. ``There is a case for proper supervision of banks.''

The prime minister and chancellor have repeatedly said the run on U.K. mortgage lender Northern Rock Plc was the result of a global credit squeeze that had its origin in the U.S. They have rejected accusations that Britain's ``light-touch'' regulatory regime, that boosted London's standing as an international financial center, was at fault.

Italian Prime Minister Romano Prodi and European Commission President Jose Manuel Barroso will also be present at today's talks. The leaders will hold a joint news briefing at 7:30 p.m. London time.

Subprime Concerns

The collapse of the subprime mortgage market in the U.S. last year curbed funding to Northern Rock in Britain and forced the lender to tap authorities for emergency funds in September. The episodes have lifted the cost of credit around the globe and raised concern Western economies will slow this year.

Today's meeting comes as the U.S. Federal Reserve considers pushing interest rates below the pace of inflation this year to avert the first simultaneous decline in U.S. household wealth and income since 1974.

The threat of cascading stock and home values and a weakening labor market will spur the Fed to cut its benchmark rate by half a percentage point tomorrow, traders and economists forecast. That would bring the rate to 3 percent, approaching one measure of price increases monitored by the Fed.

In Britain, the economy is headed for growth of 1.8 percent in 2008, matching the lowest pace since the end of the last recession in 1992, compared with 3.1 percent in 2007, according to a survey of economists by the Treasury.

`Appropriate Action'

``What the events of last autumn and this year have demonstrated is that governments do need to take appropriate action to support the economy, whether it's the world economy or their own economy,'' Darling said today. ``We've got that flexibility in this country to enable us to do that.''

German officials, meanwhile, have suggested there is broad agreement with Brown on the need to make banks more transparent. Finance ministers from the four countries agreed to push markets for more disclosure when they met in Paris on Jan. 17.

``The lesson from the turbulence must be that we need more transparency in the role of new instruments,'' Merkel said in a podcast on her government's Web site Jan. 25. ``There's global realization that we need new rules or voluntary accords from companies to implement their own controls.''

Germany also will seek to strengthen controls on hedge funds, Ulrich Wilhelm, the chief government spokesman, told reporters in Berlin yesterday.

The meeting won't produce any binding decisions, Wilhelm said. Instead, it will guide a meeting of finance ministers from the Group of Eight nations when they meet in Tokyo on Feb. 9.

Brown's spokesman Michael Ellam yesterday denied that the proposals would amount to more regulation in the U.K. ``Our approach has always been to try to avoid heavy-handed regulation in response to crises,'' he said.

In recent weeks, Brown has also suggested that the role of the International Monetary Fund should be widened to include global stability.

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