With no end in sight to the credit crisis, Europe's finance chiefs have launched a drive to lift the shroud of opacity over the rarefied world of high finance, which they blame for the turmoil.
European finance ministers and central bankers called on Friday at a meeting in Porto, Portugal, for more transparency in the financial system in a bid to restore confidence to nervous investors.
Roller-coaster volatility has gripped financial markets since early last month as concerns about high-risk home lending in the US have prompted investors worldwide to reassess their overall risk exposure.
In response, Europe's finance chiefs ordered a high-level panel "to review alongside our international partners how to improve transparency of complex financial instruments, institutions and vehicles."
Amid the recent market turbulence, some financial institutions have discovered that they were bearing more risk than they thought due to often opaque repackaging of complex financial instruments.
Major British mortgage lender Northern Rock had to be bailed out by the Bank of England this week as banks clamp down on lending to each other on fears that some counterparts are overloaded with risky loans.
Hundreds of worried customers of Northern Rock began queuing outside local branches at dawn yesterday as they scrambled to withdraw their savings.
In the wake of the Northern Rock crisis, British finance minister Alistair Darling called for "international action" to drive out risks to stability in the banking sector.
"International action is needed to ensure that in the future we can reduce the risk of this sort of turbulence occurring again," Darling said.
Darling called on members of the G7 to review regulation of the banking sector and credit rating agencies, which have been blamed for not sounding alarms about the weakness of some financial institutions.
Separately, German Finance Minister Peer Steinbrueck said: "France and Germany want to raise together this question of transparency in the international finance system during the next G7 meeting in Washington."
He too focused on the role of credit rating agencies in the current crisis, which are facing growing criticism for not having sounded alarm bells about the riskiness of some highly complex finance.
"What I'm particularly interested in is to what extent the rating agencies participate in the conception of structured financial products and to what extent the same agencies participate in their rating," he said.
EU Services Commissioner Charlie McCreevy, who guides European policy on the financial sector, warned that "investors have not understood the risks that they have taken on" due to the complexity of some of the financial products they have bought.
More transparency was required because "supervisors need to see where the risks really lie," McCreevy said.
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