Measures to compel the world’s big banks to bring in tougher assessment of risks and more rigorous valuation of complex financial instruments are to be examined by ministers from the Group of Seven (G7) leading economies, in response to global market turmoil.

Finance ministers from the G7 nations have told the Financial Stability Forum (FSF) – their markets’ watchdog based at the Bank for International Settlements (BIS) in Basle – to examine the origins of the credit crunch. The FSF has also been ordered to consider what changes in banking regulation, and banks’ procedures, might be needed to prevent future crises.

It emerged yesterday that an initial report from the forum, which includes officials from G7 finance ministries, central banks and financial regulators, will be considered by ministers from the world’s biggest economies next month, when they gather in Washing-ton for the annual meeting of the International Monetary Fund.

Britain has played a leading role in the G7’s response to the credit crisis. Yesterday Alistair Darling, the Chancellor, said that the international action was essential to “determine where improvements are needed to increase the resilience of the financial system for the future”.

In a letter to fellow EU finance ministers ahead of talks on the crisis today and tomorrow in Portugal, Mr Darling set out key priorities for the FSF’s scrutiny. He said that the G7 expects the forum to consider issues including: improvements to regulation ensuring banking systems have sufficient capital; the role of credit ratings agencies in policing structured credit products, and the need for more transparency over ratings; banks’ internal procedures for managing risk and their accounting and valuation methods; and arrangements for cross-border crisis management between national authorities.

The G7 moves came as the European Central Bank (ECB) gave warning that the global credit squeeze could jeopardise eurozone and world economic prospects. The ECB said: “While the global repercussions of the US economic slowdown have so far been limited, it remains to be seen whether the recent financial market turmoil will lead to a lasting reappraisal of global financial market risks and a loss in confidence with possible implications for the real economy.”

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive