Regulators must be able to make certain that financial institutions have enough capital to weather crises

Regulators must be able to make certain that financial institutions have enough capital to weather crises

Regulators must be able to make certain that financial institutions have enough capital to weather crises

Mr. Summers laid out five principles for the plan: The government must have the authority to take over and liquidate failing nonbanking financial institutions. Regulated entities must not be able to choose their regulators, nor should regulators have to fight each other for jurisdiction. And the interests of consumers must trump the interests of regulated companies.

But IMF chief Dominique Strauss-Kahn and U

Finance ministers from the Group of Eight leading industrialized countries Saturday said they had started to discuss how to scale back the massive amounts of stimulus they have injected into their economies. Less than a month before a meeting of G8 world leaders in L’Aquila, Italy, top finance officials said they had asked the International Monetary Fund to help them map out the best strategy for cutting budget deficits, withdrawing support from banks, and tightening monetary policy.

S. Treasury Secretary Timothy Geithner both stressed the need to ensure a recovery had taken hold before pulling back on global efforts to lift the economy. “We discussed the need to prepare appropriate strategies for unwinding the extraordinary policy measures taken to respond to the crisis once the recovery is assured,” the finance ministers said in a statement at the end of their two-day meeting. The result is an increase in government debt unprecedented in peacetime.

Without a plan to scale back their debts, governments fear yields on their bonds may rise significantly, increasing the cost of borrowing for the public and private sectors and threatening to undermine any recovery. G8 finance ministers said the so-called “exit strategies” the IMF should look into will vary from country to country, but are “essential to promote a sustainable recovery over the long term.” The IMF’s Strauss-Kahn said the main focus for policy makers should still be to fight the existing crisis. “Before the exit strategy we have to exit the crisis,” he stressed, in remarks that were backed by Geithner, representing the world’s largest economy. “We need to reinforce the improvement in global demand and continue to lay a foundation for a durable recovery,” Geithner said. “It is too early to shift toward policy restraint.”

But as the global economy stabilizes, new risks to growth have emerged, among them rising oil prices. In their statement, the finance ministers said that “excess volatility of commodity prices poses risk to growth.” Italian Finance Minister Giulio Tremonti, who holds the 2009 presidency of the G8, warned the big stimulus used to fight the recession may already be recreating the kind of financial speculation that was at the root of the economic crisis. Tremonti said speculation had returned, especially in oil markets, where prices have recently risen sharply, posing a threat to the recovery. “Instead of financing the real economy, the extra liquidity in the system has this tendency to fuel speculation,” the Italian minister said.

Governments across the developed world raised their borrowing to try to shore up demand as the financial crisis intensified in late 2008

Front-month crude oil prices this week surged to their highest levels since October, topping $72 a barrel and trading at more than twice the low hit in January. Although currencies were not formally discussed at the meeting, which wasn’t attended by central bankers, remarks by Russia’s deputy premier reassuring the U.S. on its dollar policy are expected to help support the greenback. Russian Finance Minister Alexei Kudrin late Friday said that over the next year or more he “does not see any significant changes in our policy with regards to dollar-denominated paper.” The dollar had weakened earlier this week after Russia’s central bank said the share of U.S. governments bonds in its reserves would fall as it bought $10 billion of IMF bonds.