U.K. Chancellor of the Exchequer Alistair Darling Friday called on global economic policymakers and regulators to provide a coordinated response to financial stability issues arising from the recent period of instability in global financial markets.
In a letter to European Union finance ministers ahead of this weekend's Ecofin meeting in Portugal, Darling said he expected the "strong" global economy to "weather the storm" in markets over the past month.
But he said the turbulence "has raised important policy concerns that require careful consideration by policymakers throughout the world."
Darling said the Group of Seven industrialized nations had asked the Financial Stability Forum - a body comprising finance ministers, central bankers and regulators under the chairmanship of Bank of Italy Governor Mario Draghi - to assess the underlying causes of recent market developments.
"The world economy is currently strong and is well placed to weather the storm," Darling said. "But we as finance ministers, along with regulators and central banks, should continue to monitor the situation carefully and stand ready to take appropriate action as necessary."
The credit crisis gripping financial markets is bound to feature strongly in discussions at the informal meeting of all 27 European Union finance ministers and central bankers as policymakers try to work out how best to avoid a crash.
Both Darling and Bank of England governor Mervyn King have this week emphasized that there should be no bail outs for banks despite pressure from financial institutions on global central banks to cut interest rates and ease lending conditions.
The BoE has not injected large amounts of cash into the financial system, unlike many other major central banks, choosing instead to fine tune its existing money market framework.
"While we should avoid precipitate reactions, particularly as events continue to unfold, we should also examine the causes of these events carefully and determine where improvements are needed," Darling said in the letter. "Primary responsibility for managing risk is, and must remain, with individual financial institutions and investors."
The G7 group of major industrialized nations has asked the Financial Stability Forum to report to the IMF in October on the causes of the current market turbulence and how weaknesses in the financial system can be dealt with.
Darling expanded on its remit which includes how to strengthen liquidity rules, whether credit rating agencies should be more transparent, how ratings are used by investors and how to improve cross border crisis management.
"Regulatory authorities in different countries need to co-operate effectively in exchanging information and in the management of crises and contagion," Darling said.