The Financial Stability Forum met in New York over the past couple of days, noting that it sees signs of stability in money markets, but saying it will take time to fully work out. It plans to study possible regulatory responses.

FSF members noted signs of stabilization in money markets, and to some extent in credit markets, although liquidity remains low in several market segments, they allowed. They also said the period of adjustment may take some time, depending among other things on the restoration of confidence in valuations of credit instruments and in assessments of counterparty creditworthiness.

The FSF said it would welcome the adoption of common guidelines for valuation, particularly for complex illiquid products. It also welcomed the progress being made on the implementation of Basel II, capital adequacy standards for global banks.

Members agreed that the global macroeconomic backdrop generally remains strong, that underlying credit problems have been limited to a small proportion of credit instruments, and that the capital of regulated institutions has remained at sound levels.

The FSF said it will form a working group, which will be chaired by FSF chairman Mario Draghi, to analyse the underlying causes of the recent market turbulence and make proposals to enhance market and institutional resilience. An outline of the work plan will be provided to G7 Finance Ministers and central bank Governors for their October meeting. And, a final report and recommendations by the FSF will be submitted to G7 Ministers and Governors for their April 2008 meeting.

The next meeting of the Financial Stability Forum will be held in Rome in March 2008.