Central banks seek rankings for financial products

Written by Reuters | Basel | Updated: Jun 30 2009, 06:32am hrs
Financial products should be treated like medicines and sold to consumers only when they are certified safe to prevent a repeat of last years financial meltdown, the worlds central bankers said on Monday.

The Bank for International Settlements (BIS), which acts as a forum for central banks, said government efforts to revive the global economy might have only a temporary impact because banks are not being pushed hard enough to fix their underlying problems.

Banks lending and other practices, including the approval of risky mortgages in the United States, led the global economy into the worst recession in decades. Governments have poured trillions of dollars into rescuing the financial system and easing a recession that has cut through company workforces.

A rise in Japanese industrial output and a pick-up in euro zone economic confidence showed the unprecedented government spending is having an effect. But policymakers said it was too early to conclude a recovery was taking root and officials in the United States, Europe and China said the need for further stimulus measures should not be ruled out.

I think that we are not out of the woods yet, said Guillermo Ortiz, Mexicos central bank governor and the BIS board chairman. One important question is whether these green shoots actually take root.

Global recovery hopes have pushed world stocks more than 20% higher in the second quarter. But the rally has stalled recently on worries that markets may have been too aggressive in their bets on the strength and timing of the nascent upturn.

US stocks are expected to open flat to higher following mixed signals from Asia and Europe. Tokyo shares fell 1%, but European stocks were up 0.9% by.

The BIS was alarmed by how a collapse in the value of opaque and complex securitised products propelled the worlds financial system into crisis. It said in its annual report all financial products should be registered like medicines. The safest instruments would be available to everyone, a second tier only to people with authorisation, like prescription drugs, and a third tier to a limited number of pre-screened individuals and institutions, like experimental drugs are.