G7 to push private sector to help settle markets

WASHINGTON (Reuters) - Finance chiefs from rich nationsmeet on Friday to bless proposals for tightening scrutiny ofglobal banking practices and to press the private sector tostep up its efforts to settle financial markets.

Group of Seven finance ministers and central bankers willreview a hefty set of recommendations from a blue-ribbon studygroup, the Financial Stability Forum, for calming a marketscrisis that has rippled across the globe since last summer andmay eventually cost as much as $1 trillion (506.5 billionpounds) in losses.

Indications before Friday's meeting were that most G7members already accept the proposals, including measures toimprove risk management so banks aren't caught short of cash asoccurred this year when credit markets seized up.

"I expect the recommendations of the FSF, perhaps amendedsomewhat, will be adopted by the ministers and centralbankers," Canadian Finance Minister Jim Flaherty said onWednesday as he briefed reporters ahead of the G7 meeting.

The next step will be to push bankers to match the vigourof the efforts that global central banks have shown in battlingthe liquidity squeeze by urging these private-sector players toquickly put their losses behind them and resume lending.

BANQUET FOR BANKERS

A select group of bankers has been invited to a dinner onFriday night at the U.S. Treasury Department, following theformal G7 meeting and after a G7 communique has been issued ataround 6:30 p.m. (11:30 p.m. British time).

The G7 comprises the United States, Britain, Canada,France, Germany, Italy and Japan. U.S. Treasury Secretary HenryPaulson clearly stated his position on Thursday that he wantsbanks to be ready to play their role as a market stabilizer.

"If you think you're going to need capital, don't belooking for the government to help you," Paulson said afteraddressing the Council of Institutional Investors. "If youthink you need capital, go raise it."

On the eve of Friday's gathering, Bank of Japan GovernorMasaaki Shirakawa said the G7 countries "need to show a cleardetermination towards stabilizing the financial system."

The eight-month-old crisis, which originated in a meltdownof U.S. subprime mortgage markets, ricocheted through theglobal economy as securities cobbled together on Wall Streetfrom bits and pieces of mortgage loans turned sour.

It has now has cast a pall over global economic prospects.The International Monetary Fund said this week it expected theUnited States to topple into a "mild recession" this year andestimated a 25 percent chance the global economy will grow by 3percent or less, which would be considered recessionary.

TIGHTEN LENDING SCRUTINY

The outlines of the FSF's proposals, which U.S. officialssaid will number about 65 recommendations, are known: fullerdisclosure of risks by banks, more rigid standards for creditrating agencies, measures by central banks to ensure they caneffectively pump cash into the system at times of stress.

"We look forward to discussing rapid and effectiveimplementation of the FSF findings with our colleagues," U.S.Treasury Under Secretary David McCormick said on Wednesday.

While the focus is clearly on financial-system reform, G7ministers want to send a message that the global economy is notabout to run off the rails and might tweak communique languageon currencies in response to European concerns that the eurohas reached new heights against the dollar.

"I deplore the excessive volatility of exchange rates,"European Central Bank President Jean-Claude Trichet said onThursday after the euro hit a record peak of $1.5912.

Past communiques also have encouraged China to speed upappreciation of its yuan currency, and the pace of thecurrency's rise has picked up. It crossed 7.00 to the U.S.dollar on Thursday for the first time in more than a decade.

The G7 could give a nod to the increased pace ofappreciation, which is considered vital to help reduce globaleconomic imbalances, but likely will also urge Beijing to keepthe process going.

Federal Reserve Chairman Ben Bernanke emphasized in aspeech on Thursday that there was an urgency about puttingreforms in place to restore confidence. The U.S. central bankhas pumped about $400 billion of liquidity into markets andother global central banks also have poured in cash to boostbanks' willingness to lend.

"We do not have the luxury of waiting for markets tostabilize before we think about the future," Bernanke said.

(Additional reporting by Joanne Morrison, Mark Felsenthaland Leika Kihara in Washington and Louise Egan from Ottawa;Editing by Tim Ahmann)