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G-7: 'Urgent Action' Needed
Officials from top economies vow to cooperate to contain financial crisis.
By Tami Luhby, CNNMoney.com senior writer
Last Updated: October 10, 2008: 7:25 PM ET
NEW YORK (CNNMoney.com) -- Finance ministers from the world's top economies pledged Friday to work together to stabilize global financial markets.
"The G-7 agrees today that the current situation calls for urgent and exceptional action," the leaders, who are meeting in Washington D.C. , said in a statement. "We commit to continue working together to stabilize financial markets and restore the flow of credit, to support global economic growth."
The plan of action includes:
U.S. Treasury Secretary Henry Paulson said the group "finalized an aggressive action plan to address the turmoil in global markets and the stresses on our financial institutions."
The statement, however, didn't lay out any specific actions the G-7 will take, and that's what financial institutions and investors are waiting to see, experts said. The finance ministers must announce concrete steps by the end of the weekend if they want to soothe the roiling markets.
"The time for such statements is long past," said Eswar Prasad, economics professor at Cornell University and senior fellow at the Brookings Institution. "We need to see real action. But the markets are getting a little concerned that there aren't many arrows left in central banks' quivers at this stage."
The Dow Jones industrial average fell over 1,874 points, or 18%, in its worst weekly decline ever on both a point and percentage basis. Wall Street lost roughly $2.4 trillion in market value during the week, according to losses in the Dow Jones Wilshire 5000, the broadest measure of the market.
Markets worldwide fared no better, with every major exchange losing ground Friday.
Global governments already taking steps
Around the world, central banks this week have tried to contain the deepening global financial crisis. On Wednesday, a group of banks including the Federal Reserve coordinated interest rate cuts, hoping to lower banks' cost of borrowing and soothe nervous investors.
The Fed lowered its benchmark interest rate by a half-point to 1.5%. The European Central Bank, which had kept rates unchanged as the Fed engaged in a string of rate cuts over the last year, cut its rate by a half-point to 3.75% - its first cut in five years. The Bank of England also cut its rate by a half-point to 4.5%. The Swiss, Canadian and Swedish central banks also made cuts.
Some countries have also had to rescue their troubled institutions. The Dutch and Belgian governments took over Fortis, before selling pieces of it to BNP Paribas. The British are nationalizing mortgage lender Bradford & Bingley.
And some nations, including Ireland , France and Germany , have said that all bank deposits will be insured by their governments for the time being.
Meanwhile, the United States and United Kingdom are developing plans to inject capital into banks, which would entail acquiring stakes in the institutions.
"As we develop plans to purchase equity ... we are working to develop a standardized program that is open to a broad array of financial institutions," Paulson said.
Coordinated effort needed
Some experts say that a coordinated effort is needed to restore confidence and stability to markets.
"I hope the G-7 meeting will point toward coordinated actions to show that authorities are getting ahead of the curve," said Robert Zoellick, president of the World Bank, on Thursday. "Countries will take different actions, customized to their circumstances, yet the actions need to target the same basic problems."
That problem is a lack of confidence between financial institutions worried about their ability to safely trade and loan money to one another. These jitters prompted a near cut-off in credit needed to fund the day-to-day operations of businesses around the world.
"The G-7 countries can work through this crisis by dealing with bad assets, recapitalizing banks, and providing much needed liquidity," said Zoellick. "They need to work together to fix the financial, regulatory, and supervisory system that failed."
First Published: October 10, 2008: 6:27 PM ET