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G-7 Pledges to Stabilize Financial System; US Congress Calls Hearings


Top economic officials from the world's wealthiest nations say they will take "whatever actions necessary" to ensure the stability of the international financial system.

Finance ministers and central bank governors of the G-7 discussed the U.S. financial bailout plan Monday in a conference call.

The commitment follows the Bush administration's request to the U.S. Congress for a $700 billion financial intervention plan. President Bush said "the whole world is watching" how the United States copes with this crisis. He urged Congress to avoid partisan actions that would make the bill less effective or slow its passage.

The president said failure to act on the package would have "broad consequences" that hurt ordinary Americans as well as wealthy investors. Congress has scheduled a hearing on the issue with the head of the U.S. central bank on Wednesday.

Washington's actions got a mixed reaction from investors. Asian stock markets made gains in Monday's trading, but European and U.S. shares declined.

In another development, the U.S. Federal Reserve Board said Monday it is speeding up approval for the last two major American investment banks, Goldman Sachs and Morgan Stanley, to become bank holding companies.

The change means the two companies will be able to accept deposits and borrow money from the U.S. central bank.

The banks will also now be subject to much more stringent government regulation. That will reduce risk, and potential profit, by forcing the banks to keep more money in reserve in case investments go sour.

In the meantime, Japan's largest bank and its largest securities firm are working to buy parts of some major U.S. firms. Mitsubishi UFJ has agreed to buy up to one-fifth of Morgan Stanley, while Nomura says it has made a deal to buy the Asian operations of bankrupt Lehman Brothers.

After news that a bailout plan was being developed in the United States late last week, stock markets around the world recovered much of what had been lost earlier in the week. Market analysts said the plan to remove bad loans from the financial system calmed market fears about the future of the economy.

The plan calls for the U.S. government to purchase bad debt, including investment instruments based on mortgages that now can not be paid back, from U.S. financial institutions, which have lost many billions of dollars in risky loans.

Some information for this report was provided by AFP, AP and Reuters.