Defaulting U.S. subprime mortgage loans sparked a tightening of credit that has mushroomed into an international crisis. Central banks have flooded markets with cash to try to spark lending, and the U.S. Federal Reserve and other central banks have cut interest rates to try to keep economies afloat.
Banks have already written down roughly $225 billion (114 billion pounds) in assets tied to souring mortgages and other loans in 2007 and the first quarter of 2008, according to German Finance Minister Peer Steinbrueck, who dismissed as far-fetched estimates that losses could eventually reach $1 trillion.
"Numbers like that can cause a lot of fear, he said.
G7 members, notably the United States and Canada, want to push bankers to match the vigour that global central banks have shown in battling the liquidity squeeze by urging these private-sector players to quickly put losses behind them and raise new capital. A select group of bankers has been invited to a dinner on Friday night at the U.S. Treasury Department.
LIKE POETRY
In a nod to European leaders who had voiced dismay over volatile foreign exchange markets that pushed the euro to new highs against the U.S. dollar, the G7 also strengthened its call for calm in currency markets.
"Since our last meeting, there have been at times sharp fluctuations in major currencies, and we are concerned about their possible implications for economic and financial stability," the communique stated. "We continue to monitor exchange markets closely, and cooperate as appropriate."
That marked the first shift in four years from the G7's boilerplate language on currencies, and provided a verbal caution to markets that world finance leaders were keeping a close watch on currency moves.
"This change in the language ... shows a concern we have not seen for some years," Italian Economy Minister Tommaso Padoa-Schioppa said.
When asked about the thinking behind the changes in the statement, European Central Bank President Jean-Claude Trichet replied, "It's like a poem, it speaks for itself."
