Gordon Brown is planning to lead efforts to create an early warning system for the global economy in the wake of the banking instability caused by the credit crunch in the sub-prime market.
The Prime Minister said the decision by five leading central banks including the Bank of England and the US Federal Reserve to inject 50bn into the markets had been an "important step forward". But he warned radical reforms were needed to the credit-rating agencies and more transparency was needed in the banking sector. He said more co-operation was needed in the global banking system to head-off future emergencies quickly.
His remarks will be seen as criticism of the banks for failing to respond more urgently to the need for greater liquidity, which was injected on Tuesday, some months after the crisis over the sub-prime market began. The "turbulence" created by the collapse of the sub-prime mortgage sector in the US was a "wake-up call" to the world banking system, he said.
Mr Brown told a hearing of the Commons Liaison Committee: "I do believe the lessons of this summer have shown we need a better early warning system in the global economy, we need greater co-operation between international authorities to head off difficulties. Given this was financial turbulence that started in the US but affected some of the smallest organisations in Germany, France, European countries as well as in Britain, there is a case for looking very seriously how you can coordinate our activities better."
He added: "I believe it is a wake-up call for the global economy. The existing institutions are not good enough. I'm going to make it my business to try to reform these institutions to make them better able to deal with the sort of problems that we have got."
But others cast doubt on Mr Brown's ability to bring about change. Alan Clarke, UK economist at BNP Paribas, said: "He is probably trying to salvage some popularity by being seen to do something. The root cause of the crisis was that monetary policy was too loose for a long time and that encouraged people to take excessive risks and lend too much money."
In a document Mr Brown is to deliver in Brussels today, he will say the International Monetary Fund and Financial Stability Forum could be transformed with a renewed mandate to provide not just independent surveillance of the world economy but also to become its "early warning system" against threats to financial stability.
"Should we develop greater international co-operation between our regulatory and supervisory authorities?" Mr Brown will say. "Can we establish more effective forums to meet the new economic challenges?"
He will tell the summit the EU needs to reinforce the commitment to the Lisbon strategy for competitiveness, innovation and jobs with a modernised and flexible approach to the single market and regulation promoting competition.
"The turbulence in the international financial markets demonstrates the need for a co-ordinated global response. The EU should play a leading role," he will say.Reuse content