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Prepared Statement by U.S. Treasury
Under Secretary David H. McCormick
in Advance of the G7 Finance Ministers and Central Bank Governors Meeting
October 8, 2008, Washington DC

• See also G7 Finance Ministers and Central Bankers Plan of Action (October 10)
• See also G7 Statement on Exchange Rates (October 10)
• See also Statement by U.S. treasury secretary Henry Paulson (October 10)
• See also Statement by U.S. president George Bush after meeting with G7 finance ministers (October 11)

Good afternoon. The G7 Finance Ministers and Central Bank Governors will hold their next meeting here at the Treasury Department on October 10, amid the IMF and World Bank Annual meetings. The G7 meeting will be heavily focused on current economic conditions, financial market developments, and our collective and individual policy response to recent financial market turmoil.

Secretary Paulson will share with his G7 colleagues that this is a very challenging period for the United States and that we are focused on the immediate need to stabilize our financial system. Unprecedented stresses in financial markets, concerns about counterparty risk and tight credit markets overall are making it difficult for citizens to access credit and for businesses to finance day-to-day business operations. Meanwhile, Europe and Asia are also facing economic and financial challenges and the macroeconomic landscape has deteriorated in recent weeks.

This background underscores what I believe will be one of the central key messages for the weekend -- the turmoil is a global phenomena. We are all affected by it, and strengthened international collaboration is needed now more than ever to find collective solutions to achieve stable and efficient financial markets and restore the health of the world economy. The Secretary and I have been in regular contact with our G7 and other international counterparts and Friday's meeting will provide us with a timely opportunity to further strengthen our collaboration.

The G7 are working individually and collectively across four fronts: liquidity, capital, market stability, and our regulatory response.

The world's central banks have acted together to provide additional liquidity for financial institutions. The Federal Reserve established swap lines with nine central banks. Also, Treasury implemented a temporary guaranty program for the U.S. money market mutual fund industry.

To bolster capital in the financial system, the Administration worked with Congress to develop a $700 billion program for addressing the problem of these illiquid assets on the balance sheets of financial institutions. This will help reduce an enormous source of uncertainty in the markets and stimulate capital raising. We know other countries are considering appropriate programs given their national circumstances and we look forward to working with them as they move forward with their plans. We, and our European counterparts, have also acted swiftly on a case-by-case basis to address destabilizing financial conditions in a number of institutions in the U.S. and Europe.

In the area of market stability, the SEC and its counterparts in several countries around the world have taken measures to address market abuse. The United States has raised its deposit insurance limits and the EU member states have raised individual deposit limits to an EU-wide minimum.

Finally, we have worked to develop a comprehensive, international regulatory response to ensure these same mistakes are not repeated. In this context, at our April meeting, the G7 endorsed a series of FSF proposals to address the causes of the financial market turmoil and set forth a 100-day agenda for priority actions. The 100-day agenda was initiated on time and we are encouraged by the progress so far to meet the FSF's recommendations. On Friday, FSF Chairman Mario Draghi will discuss what has been achieved, describe what more needs to be done this year, and lay out an agenda for 2009. The U.S. the President's Working Group on Financial Markets reviewed policy issues and issued recommendations in March that include important steps very much in line with the FSF to improve market transparency and disclosure, risk awareness and risk management, capital and regulatory policies, practices regarding the use of credit ratings, and market infrastructure for over-the-counter derivatives products.

The turmoil also affects emerging markets. Because of that reality, the IMF and FSF will co-host tomorrow a meeting on the recent financial turmoil and policy responses. Secretary Paulson will attend and is committed to reaching out to emerging market economies, especially given their increasingly prominent global role.

While our discussions will center on the global economic and financial developments, the G7 will also discuss issues pertaining to the IMF and World Bank. The U.S. will underscore that the IMF must play a critical role in global economic and financial sector surveillance and must continue to modernize itself to remain legitimate. We will emphasize the need for firm implementation of the IMF's new exchange rate surveillance decision. The U.S. will express support for the proposed World Bank voice and vote package to enhance the participation of the poorest member countries, especially in Africa. We view the reforms as an important step forward in improving the Bank's accountability to its shareholders.

We are pleased that the International Working Group of Sovereign Wealth Funds reached a landmark agreement on a set of Generally Accepted Principles and Practices which will enable SWFs to demonstrate their strong stake in promoting open and stable global financial markets. The G7 will also welcome next week's inaugural meetings of the new climate funds, including the Clean Technology Fund (CTF). The CTF will support policy measures and investment projects to help developing countries lower their emissions trajectories. While these are also important issues, these are extraordinary times and the predominant focus of the meeting will be financial market turmoil. In this context, after the meeting, Secretary Paulson will host a G7 dinner on lessons learned from country experiences with bank resolution.

Secretary Paulson will be meeting bilaterally with a number of his counterparts from within and outside the G7. He will also attend a breakfast meeting of the International Monetary and Financial Committee of the IMF and host a roundtable meeting with the Finance Ministers from a number of Western Hemisphere countries to discuss key economic issues impacting the region.

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