Last Tuesday, the UK came out with a three-part plan to resolve the global financial crisis. This appears to be on the right track. They will guarantee short-term inter-bank loans, support medium-term borrowing by banks, and infuse equity capital into distressed banks, with corresponding control in the hands of the government. Over the weekend, all eyes were on the Group of Seven countries and a coordinated plan of a similar nature which would essentially cover all the large banks of the world.

The announcement by the G7 makes five key statements. They will:

• Take decisive action and use all available tools to support systemically important financial institutions and prevent their failure.

• Take all necessary steps to unfreeze credit and money markets and ensure that banks and other financial institutions have broad access to liquidity and funding.

• Ensure that their banks and other major financial intermediaries, as needed, can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.

• Ensure that their respective national deposit insurance and guarantee programs are robust and consistent so that their retail depositors continue to have confidence in the safety of their deposits.

• Take action, where appropriate, to restart the secondary markets for mortgages and other securitized assets. Accurate valuation and transparent disclosure of assets and consistent implementation of high quality accounting standards are necessary.

These five elements are statements of intent but not specifics about what interventions will be made. Details of the actions of each of these countries would come out from each country separately, and would reflect variation in institutional mechanisms.

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