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G7: Worst of global recession may be over

(Agencies)
Updated: 2009-04-25 17:11

The International Monetary Fund, which has estimated that losses at financial institutions around the globe could exceed $4 trillion, urged rich nations to prioritize repairing the financial sector because the world economy cannot fully recover unless credit is flowing.

"The IMF is absolutely right when it asks countries to deal with toxic assets because transparency is crucial for recovery," said Mario Draghi, head of the Financial Stability Board, a newly fortified group designed to coordinate global regulatory reform.

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But some European officials questioned how the IMF calculated the magnitude of bank losses. The Fund estimated that European banks may need to write down $750 billion in bad assets, while US firms had $550 billion more to go.

"We are looking at it very carefully and we think there are methodological issues we have to clarify with the IMF," European Central Bank President Jean-Claude Trichet told a news conference after the G20 meeting. "I am not criticizing the IMF (but) we have to look at it very carefully."

US regulators have put 19 of the largest US banks through stress tests to assess whether the government will have to pump more money into them. Geithner said the results of the stress tests were not discussed at the G7 meeting.

The Federal Reserve released a paper on Friday outlining the methodology of the tests, and said banks needed to hold substantially more capital than is usually required to weather a potential worsening of the recession.

Canadian Finance Minister Jim Flaherty, who has expressed frustration over the slow pace of progress in fixing the banks, said after the G7 meeting that he was pleased with US and British efforts to implement their bank repair plans.

"We're going in the right direction," he said.

With attention firmly focused on the banking sector, the G7 made no changes to its closely watched statement on currency markets, repeating its February caution that excess volatility and disorderly movements in exchange rates were unwelcome.

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