G-7's FSF promises not to overlook Asian concerns

G-7's FSF promises not to overlook Asian concerns

HONG KONG (Reuters): The chief of a G-7 watchdog on global
financial stability assured Asian central bankers on Saturday
their views would be considered in its work to help avert crises.

Financial Stability Forum (FSF) chairman Andrew Crockett, who
also heads the Bank for International Settlements, was responding
to concerns that rich nations were not sufficiently aware of the
impact of hedge fund activities on small, open economies.

"They were very anxious that the Financial Stability Forum not
overlook this concern...," Crockett said after a meeting in Hong
Kong with representatives of 11 central banks.

"I think I was able to assure them that this was a concern
that was understood by the FSF and that we have a group working
on that problem."

Crockett, briefing reporters about his talks with the bankers
here, said a few Asian central banks were participating in the
working group.

The FSF was initiated by the G-7 club of rich nations in
February after financial crises in Asia, Russia and Brazil raised
concerns about the damaging effect of speculative capital flows.

Worries about financial stability deepened in September when a
huge U.S.-based hedge fund, Long Term Capital Management, nearly
collapsed when volatile markets turned against it.

In the talks in Hong Kong, Asian central bankers have
expressed concern that rich nations in the FSF would focus
predominantly on the impact on developed markets.

"What I could not say to them was that I knew exactly how the
discussions (within the FSF) would come out," Crockett said.

The FSF has invited Hong Kong, Singapore, Australia and the
Netherlands, as major financial centers, to participate in its
meetings. The next gathering will be on September 15 in Paris.

Crockett said some Asian central bankers he had met on
Saturday favored an expansion of the forum to include smaller,
open economies which were particularly vulnerable to the
activities of hedge funds and other highly leveraged investors.
But he said this was not on the cards.

"I hope we will involve in some fashion all of the countries
that have a significant interest in financial stability and that
obviously involves countries that are vulnerable to financial
crisis," Crockett said.

FSF membership needed to be restricted to allow participants
to have open discussions and reach agreements, he said. The forum
could be expanded but was unlikely to include smaller economies.

The FSF aimed to keep lines of communication open with small
economies, including those in Asia.

"I don't think we are contemplating a formal liaison body, but
what we would like to do is deepen our relationship with central
banks in the region," said Crockett, adding the group also aimed
to foster communications with the private sector.

Crockett's meeting followed a one-day Executives' Meeting of
East Asia-Pacific Central Banks in Hong Kong on Friday.

The group comprises central banks and monetary authorities
from Australia, China, Hong Kong, Indonesia, Japan, South Korea,
Malaysia, New Zealand, the Philippines, Singapore and Thailand.

The BIS will hold its monthly meeting in Shanghai on Monday
and will discuss the outlook for the global economy, developments
within the FSF and progress in bank restructuring and other
financial reform, Crockett said.

"There has been concern expressed in the past, and it was also
expressed in this morning's meeting, that as the recovery gathers
pace, the impetus for carrying out reforms in the financial
systems may slip. So I think the governors will want to encourage
each other not to let the momentum slip," he said.