Global Crisis Seeks Global Solutionby Tim Manni
The Group of Seven (G7), a gathering of the world’s wealthiest countries, began their meeting today in Washington, DC to discuss a global solution to the financial crisis that began in the US and has spread worldwide. G7 leaders, which include not only heads of state but financial ministers and central bankers, have agreed that a conglomerate decision is needed to re-establish a healthy financial operating system, after a global selloff of stocks have crippled the Asian, European, and American markets.
So far, all attempts from the US Treasury Department have not spurred inter-bank lending or extensions of credit. Following cues from Europe, the US is discussing two drastic measures to enact in order to unfreeze credit markets. The US is mulling are guaranteeing billions in bank debt, a move pitched to the G7 by the UK, as well as temporarily insuring all bank deposits, an action first taken by Ireland’s central bank last week:
Under the U.K.’s recently announced plan, which it is now pitching to the G-7 members, the British government would guarantee up to £250 billion ($432 billion) in bank debt maturing up to 36 months. The British concept to expand its proposal to other countries has a lot of support from Wall Street and is being pored over by U.S. officials, according to people familiar with the matter.
The move to back all U.S. bank deposits, which is only in the discussion stage, would be aimed at preventing a further exodus of cash from financial institutions, including small and regional banks, some of which are buckling under the strain of nervous customers. In recent weeks, customers have pulled money out of some healthy community banks under the assumption that the government will only insure all the depositors of larger banks in the event of a failure.