100 days to clean up capitalism

By Brian Love, European Economics Correspondent - Analysis

WASHINGTON (Reuters) - Policy-makers pledged over the weekend to purge capitalism of the excess that caused the latest crisis in financial markets.

It is a tall order, made taller when governments of the Group of Seven free-market democracies promised after meeting in Washington to finish much of the groundwork within 100 days, and the rest by year-end.

The 100-day deadline, based on recommendations formulated by the Financial Stability Forum, commits supervisory bodies to set higher capital requirements and tells banks to reveal the full extent of their losses in their first-half earnings reports.

Among other things, it also applies to the International Accounting Standards Board, which the G7 said should urgently produce improved ways of valuing assets of the kind that have turned toxic in the latest crisis.

They are just a few of the proposals the Financial Stability Forum presented in a drive to rid financial markets of what FSF chief Mario Draghi called the "perverse incentives" behind the recent boom and bust in credit.

"We have to find a better balance between market discipline and regulation in our financial system, a better balance between efficiency and innovation and reserves and stability," New York Federal Reserve Bank President Timothy Geithner added during a news conference with Draghi and other top officials.

So far banks have report losses and asset writedowns of more than $200 billion dollars from the crisis that started with defaults in the U.S. mortgage market but snowballed last August as investors turned their back on mortgage-backed securities and many of the more exotic derivatives that were all the rage during a five-year credit boom.

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