2nd UPDATE:Paulson: Govts Must Still Work To Provide Liquidity
10/08 03:47 PM
(Updates to add information on Fannie/Freddie mortgage-backed securities purchases and comments from Treasury Under Secretary David McCormick on G7 meetings)
By Meena Thiruvengadam, Tom Barkley and Jeff Bater
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--U.S. Treasury Secretary Henry Paulson on Wednesday urged governments around the world to continue working together to boost liquidity and strengthen financial institutions.
"Governments have and must continue to take individual and collective actions to provide much-needed liquidity, strengthen financial institutions through the provision of capital and the disposition of troubled assets, prevent markets abuse, and protect the savings of our citizens," he said in a prepared statement on the condition of financial markets.
Still, he cautioned that "we must also take care to ensure that our actions are closely coordinated and communication so that the action of one country does not come at the expense of others or the stability of the system as a whole."
Paulson expressed confidence that recent moves by the U.S. Federal Reserve in conjunction with other major central banks could help stabilize the financial sector. "Today's announcement of a coordinated rate cut, including Europe, China and other large economies, is a welcome sign that central banks around the world are prepared to take the necessary steps to support the global economy during this difficult time," he said.
Paulson said he expects a program the Fed announced earlier in the week through which it would buy commercial paper will "significantly improve the availability of funding for financial institutions and corporations that depend on the commercial paper market.
"Although we are facing particularly difficult circumstances, I remain confident that we will work through this challenge," Paulson said.
Paulson said Treasury is working to quickly implement a $700 billion plan to buy troubled assets that are weighing down bank balance sheets. He said the plan's oversight board already has held its first meeting.
He said healthy institutions also will be encouraged to participate in that program and that an interim chief financial officer has been identified to work in a new Treasury department office that will guide the effort. Treasury already has tapped Assistant Secretary Neel Kashkari to oversee the program on an interim basis.
"We will continue to coordinate with other federal regulators to use these tools to implement our strategy to address the four key challenges in our financial markets today - confidence, capital, systemic risk and liquidity," he said.
Paulson said to provide additional funding to mortgage markets, Fannie Mae and Freddie Mac's regulator asked the companies to boost purchases of agency mortgage-backed securities. "There is headroom of over $150 billion between the current GSE portfolios and their regulatory limit," he said. "We also expect Fannie and Freddie to increase direct support to the mortgage market through their ongoing securitization activities."
Paulson urged patience, reminding the world that "turmoil will not end quickly" and that significant challenges are still ahead.
"Neither passage of this new law nor the implementation of these initiatives will bring an immediate end to current difficulties," Paulson said. "It will take time and bipartisan leadership, cooperation and collaboration, as well as well-conceived and executed policies to overcome the challenges our nation is facing. And we will overcome them."
Paulson warned that some financial institutions likely will fail despite the government's wide ranging efforts to stabilize the financial sector.
"One thing we must recognize - even with the new Treasury authorities, some financial institutions will fail," he said.
Paulson also called for a special meeting of G20 officials this weekend to discuss "how we might coordinate to lessen the effects of global market turmoil and the economic slowdown in all of our countries."
The G20 was already scheduled to meet next month in Brazil.
Paulson plans to meet with Group of Seven leading industrial nations' leaders this weekend in Washington to discuss steps each is taking to address the global financial crisis.
G7 members meeting this Friday will focus on forming a "collective and individual" response to the financial crisis, Treasury Under Secretary for International Affairs David McCormick said Wednesday.
McCormick said one of the key messages of the meeting will be that the current financial turmoil is a global phenomenon.
"We are all affected by it, and strengthened international collaboration is needed now more than ever to find collective actions to achieve stable and efficient financial markets and restore the health of the world economy," McCormick said in opening remarks of a press conference ahead of Friday's meeting.
-By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629; meena.thiruvengadam@dowjones.com
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(END) Dow Jones Newswires
10-08-081547ET
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