G-7 vows to block failure of key banks, inject public capital+

WASHINGTON, Oct. 10 Kyodo - The finance ministers and central bank governors of the Group of Seven economies vowed Friday to use all available tools, including public capital injection, to fight the worldwide credit crunch and prevent ''systemically important financial institutions'' from failing.

The G-7 financial leaders, who met in Washington amid global financial
calamity, released their action plan after a one-day meeting, agreeing to
ensure that major financial intermediaries ''can raise capital from public and
as well as private sources'' as needed to permit them to continue lending to
households and businesses.
U.S. Treasury Secretary Henry Paulson pledged to work out a plan to inject
public money into troubled banks and other financial institutions by purchasing
their stock ''as soon as we can.''
''We are developing strategies to use the authority to purchase and insure
mortgage assets and to purchase equity in financial institutions, as deemed
necessary to promote financial market stability,'' Paulson said at a news
conference after the G-7 meeting.
The financial chiefs from Britain, Canada, France, Germany, Italy, Japan and
the United States said they are committed to ''working together to stabilize
financial markets and restore the flow of credit to support global economic
growth.''
The G-7 said it will ''take decisive action and use all available tools to
support'' important financial entities and pledged to ''take all necessary
steps to unfreeze credit and money markets and ensure that banks and other
financial institutions have broad access to liquidity and funding.''
The group also committed itself to ensuring each of its respective members'
national deposit insurance and guarantee programs are robust and consistent so
that ''retail depositors will continue to have confidence in the safety of
their deposits.''
The action plan was unveiled at a time global financial markets are rocked by
investor panic stemming from the U.S.-triggered credit turmoil.
At a press conference, Japanese Finance Minister Shoichi Nakagawa said the G-7
economies agreed that global economic and financial conditions ''have seriously
deteriorated'' since their previous meeting in April.
Nakagawa said he expects the concise plan of action that came out this time
rather than the usual statement will serve as evidence that the seven major
economies ''did their best to find a way out of the current stringent economic
circumstances'' and appeal to market participants.
A Japanese government official said it is ''unusual'' that the G-7 states
issued a short action plan detailing tasks to be carried out by member
countries, rather than a long statement.
Bank of Japan Governor Masaaki Shirakawa, who met the press with Nakagawa, said
the action plan indicates that it is vital to ''prevent the systemic risk from
materializing'' and that the G-7 nations agreed to ''implement appropriate
fiscal and monetary steps when needed.''
Nakagawa said that although the action plan made no reference to fluctuations
on the currency market, the G-7 economies did discuss the issue and reaffirmed
that excessive movements are undesirable.
Both the minister and central bank governor said Japan talked about its
experience of overcoming a financial crisis in the late 1990s and the early
2000s as advice for dealing with the current turmoil.
Nakagawa said he sees it as ''major progress'' and ''one of the strongest G-7
messages'' that the United States and its fellow G-7 members pledged public
fund injection into ailing financial bodies -- the policy Japan adopted during
its own crisis.
Shirakawa said the G-7 representatives referred to the Japanese case of coping
with its major financial crisis many times, along with the case of similar
crises in Northern Europe.
Nakagawa said the G-7 took note of Japan's proposal of creating a scheme under
the International Monetary Fund to support emerging economies hit by the
financial crisis.
In the G-7 action plan, the seven nations strongly supported the IMF's critical
role in assisting countries affected by the financial turmoil. The Japanese
official said this sentence was incorporated in the plan following Nakagawa's
suggestion.
Earlier in the day, U.S. President George W. Bush pledged in his speech just
before the G-7 talks that the United States will ''continue to act to resolve
this crisis and to restore stability to our markets.''
He indicated the U.S. government is positive about helping banks rebuild
capital by purchasing their equity.
The G-7 financial chiefs examined progress in their efforts to strengthen the
efficiency and resilience of global financial markets in line with
recommendations by the Financial Stability Forum, an advisory body to the seven
industrialized economies.
The FSF chaired by Bank of Italy Governor Mario Draghi said in its report
issued April 11, during the previous G-7 meeting, that financial institutions
should fully and promptly disclose their risk exposure within 100 days.
The forum said in its latest report issued after the G-7 talks this time that
work by the G-7 economies ''is proceeding well and in a coordinated fashion.''
The seven economies said in the action plan that they will ''accelerate full
implementation of the FSF recommendations'' and are ''committed to the pressing
need for reform of the financial system.''
The G-7 nations continued to discuss the global financial turmoil at a dinner
hosted by Paulson.