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Some explicit guarantee of financial system liabilities is unavoidable and a high degree of international co-operation has become urgent, the IMF says.
IMF Managing Director Dominique Strauss-Kahn proposed a four-point action plan which would include a temporary government guarantee of liabilities, government action to take out troubled assets and force the recognition of losses, government provision of capital to the financial system, and a high degree of international co-operation.
Strauss-Kahn also highlighted the need to strengthen the regulation and supervision of the financial sector, and to press ahead with reform of the international financial architecture.
“The crisis is the result of three failures: a regulatory and supervisory failure in advanced economies; a failure in risk management in the private financial institutions; and also a failure in market discipline mechanism”, he said.