by Calculated Risk on 10/09/2008 07:36:00 PM

Before the G7 meets in Washington tomorrow, British Prime Minister Gordon Brown writes in The Times: We must lead the world to financial stability. Excerpts:

The stability and restructuring programme for Britain that we announced this week is the first to address at one and the same time the three essential components of a modern banking system - sufficient liquidity, funding and capital.

So the Bank of England has pledged to double the amount of liquidity it provides to the banks; we have guaranteed new lending between the banks so that we can get the banks lending to each other again; and at least £50 billion will be made available to recapitalise our banks.

We will take stakes in banks in exchange for a return and will guarantee interbank lending on commercial terms. And at the heart of these reforms are clear principles of transparency, integrity, responsibility, good housekeeping and co-operation across borders.

But because this is a global problem, it requires a global solution. Indeed this now moves to a global stage with a range of international meetings starting this week with the G7 and the IMF and, we propose, culminating in a leaders meeting in which we must lay down the principles and the new policies for restructuring our banking and financial system all around the globe.

... I believe through wider European co-operation and also co-ordination among the leading economies, there are four broad steps we must now all take to restore our international financial system.

First, every bank in every country must meet capital requirements that ensure confidence. Just as in the UK we have made at least £50 billion of new capital available, so other countries where banks have insufficient capital will need to take measures to address this. Only strong and solid banks will be able to serve the global economy.

Secondly, short-term liquidity is simply a means of keeping the system going. What really matters for the future is to open the money markets that have been closed for medium-term funding from the private sector. ...

Thirdly, we must have stronger international rules for transparency, disclosure and the highest standards of conduct. ...

And fourthly, national systems of supervision are simply inadequate to cope with the huge cross-continental flows of capital in this new, ever more interdependent world. ...