Washington D.C., March 13, 2009 — The Institute of International Finance today highlighted the key pillars of economic and financial policy needed to address today's global crisis. Immediate action is needed to break the damaging negative feedback loop between the financial crisis and the global recession, said the IIF in a letter to UK Prime Minister Gordon Brown as the host of the forthcoming Group of 20 Summit in London and to the other leaders who will be attending.

"It is imperative that a clear signal emerge from the G-20 Summit of the specific joint actions to be taken, not only to fight the sharp decline in economic activity seen around the globe, but also to stave off any intentional or unintentional protectionist measures, which would severely deepen the crisis and endanger future prosperity," said Dr. Josef Ackermann, Chairman of the Board of Directors of the Institute of International Finance, Chairman of the Management Board and the Group Executive Committee of Deutsche Bank AG.

The IIF forecast that global growth this year will be close to negative 2 percent - a remarkable swing from solid growth of over 3.5 percent in 2006-07. The IIF, the global association of financial institutions with 380 members world-wide, said that against the backdrop of negative growth, the public sector must compensate where scope exists by increasing aggregate demand, with a focus on stimulative measures that will have immediate effect, accompanied by clear medium-term plans for fiscal consolidation. It added that further monetary policy easing may also be necessary.

Noting risks of trade and financial sector protectionism, Mr. William R. Rhodes, First Vice Chairman of the IIF's Board of Directors, Chairman, President and Chief Executive Officer, Citibank and Senior Vice Chairman, Citi, stated: "In our letter today we call on the Group of 20 to act to counter potential dis-integration of the world trading and financial system. Globalization has contributed to the creation of over 200 million jobs across the world between 2000 and 2007. We should not now put at risk the benefits of increased cross-border trade and investment that globalization has brought in recent decades."

The IIF said that the continued uncertainty surrounding the magnitude and valuation of toxic assets has become the fault line of the financial crisis. IIF Managing Director Charles Dallara stated, "Market instability and lack of confidence point clearly to the benefits of a "bad bank" approach, where troubled assets are completely removed from banks' balance sheets. Hesitation over up-front fiscal costs and difficult pricing issues fails to recognize that the real long-term costs to the economy of inaction may well be much greater than the net fiscal imbalances over time that are created by a "bad bank" approach. Action is needed now and a pragmatic approach weighing both mark-to-market and cash flow valuations can lead us out of this thicket."

As official actions move ahead, the IIF pointed out that firms are strengthening their practices in such areas as risk management, liquidity management and governance. The IIF said that the industry not only recognizes the need for fundamental reform of compensation practices, but is actively moving to align compensation with shareholder interests and long-term, firm-wide profitability, in line with the principles articulated in the Final Report of the IIF Committee on Market Best Practices.

The IIF drew attention to the sharp economic slowdown that is now in progress in emerging market economies - the IIF forecasts 2009 growth of below 2 percent compared to 7.5 percent in 2006-2007 - and the dramatic decline that is now in prospect for net private capital flows to these economies (forecast to amount to $165 billion this year compared to $925 billion in 2007). It proposed that the Group of 20 should immediately act to expand the resources of the International Monetary Fund, the World Bank and the regional development banks. For example, the IIF said that in addition to enlarging the IMF's resources by - at a minimum - $500 billion, improvements should be made in its Short-term Liquidity Facility (SLF) with longer maturities, higher access, and lower fees.

The Summit is also called upon to promote a comprehensive package of financial regulatory reforms designed to establish a more efficient and effective architecture based on heightened global cooperation. To further this goal the IIF called for the establishment of a Global Financial Regulatory Coordinating Council, reporting to the Financial Stability Forum. Comprised of regulators and central banks, this Council would play a central role in harmonizing standards; enhancing cross-border cooperation; coordinating supervision; and macroprudential oversight of the banking, insurance and securities industries. Noting that the commitment to establish colleges of supervisors for major international financial services groups is important, the IIF said the Coordinating Council can ensure that these colleges operate effectively.

In addition, the reform agenda needed to explicitly address a range of issues that can strengthen the regulatory and supervisory system. The IIF said a special high-level dialogue should be established under the auspices of the Group of 20 to take up all issues regarding fair-value accounting; commit to convergence of major accounting standards and set a firm time-table for early completion.

The Institute announced today that its Board of Directors has established a Market Monitoring Group (MMG), which will be co-chaired by Mr. Jacques de Larosière, former Managing Director of the IMF and former Governor of the Banque de France, and by Dr. David Dodge, former Governor of the Bank of Canada. The MMG, whose membership consists of international finance leaders and highly experienced market practitioners, will contribute significantly to the analysis of systemic stability. The MMG's monitoring of vulnerabilities will focus on risks which have systemic implications, for example liquidity and concentration risk, mispricing of risk, excessive leverage, crowded trades, and the potential for contagion across regions due to the interconnectedness of markets. The MMG is expected to develop perspectives that will be shared widely with market participants, while also engaging in informal dialogue with the public sector.