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Members pointed to the potential impact of higher oil and gas prices on near term prospects for growth and inflation. They also pointed to a number of continuing developments that could over time lead to strains in financial markets. These included the causes and implications of low levels of risk premia and long-term interest rates, increased exposures to complex and illiquid products, rising household sector indebtedness, and persistent or growing external and fiscal imbalances.
Members discussed the lessons that could be drawn from previous episodes of market illiquidity and steps that could be taken to limit or help resolve future disruptions to market liquidity. Recent events have emphasised the need for market participants to stress-test their risk-management models effectively for disruptions to market liquidity, in particular with regard to complex products. In this regard, they welcomed the continuing work with the Joint Forum in reviewing the funding liquidity risk management practices in financial institutions.
Members also welcomed the continued progress towards international convergence in accounting standards and noted with interest the new projects of accounting standard setters aimed at revisiting conceptual frameworks for financial accounting and reporting. They noted the important role of dialogue with stakeholders, especially supervisors, and reiterated the important role that financial accounting and reporting standards play in safeguarding financial stability.
The next meeting will be held on 17 March 2006