Central banks seek rankings for financial products

(OF, BIS, FINANCIAL, THEIR, BANKS, GOVERNMENT, PRODUCTS)

By Huw Jones and Krista Hughes
BASEL (Reuters) - Financial products should be treated like medicines and sold to consumers only when they are certified safe to prevent a repeat of last year`s financial meltdown, the world`s central bankers said on Monday.
The Bank for International Settlements (BIS), which acts as a forum for central banks, said government efforts to revive the global economy might have only a temporary impact because banks are not being pushed hard enough to fix their underlying problems.
Banks` lending and other practices, including the approval of risky mortgages in the United States, led the global economy into the worst recession in decades. Governments have poured trillions of dollars into rescuing the financial system and easing a recession that has cut through company workforces.
A rise in Japanese industrial output and a pick-up in euro zone economic confidence showed the unprecedented government spending is having an effect.
But policymakers said it was too early to conclude a recovery was taking root and officials in the United States, Europe and China said the need for further stimulus measures should not be ruled out.
"I think that we are not out of the woods yet," said Guillermo Ortiz, Mexico`s central bank governor and the BIS board chairman. "One important question is whether these green shoots actually take root.
Global recovery hopes have pushed world stocks more than 20 percent higher in the second quarter. But the rally has stalled recently on worries that markets may have been too aggressive in their bets on the strength and timing of the nascent upturn.
U.S. stocks are expected to open flat to higher following mixed signals from Asia and Europe. Tokyo shares fell 1 percent, but European stocks were up 0.9 percent by 1200 GMT. <MKTS/GLOB>
RISK OF "PROTRACTED STAGNATION"
The BIS was alarmed by how a collapse in the value of opaque and complex securitized products propelled the world`s financial system into crisis. It said in its annual report all financial products should be registered like medicines.
The safest instruments would be available to everyone, a second tier only to people with authorization, like prescription drugs, and a third tier to a limited number of pre-screened individuals and institutions, like experimental drugs are.
A final tier would be securities deemed illegal.
"Such a registration and certification system creates transparency and enhances safety ... This will mean that issuers bear increased responsibility for the risk assessment of their products," the BIS said.
The BIS also said that while governments have moved quickly to support their economies, they have not done enough to remove problem assets from banks` balance sheets.
"A significant risk is therefore that the current stimulus will lead only to a temporary pickup in growth, followed by protracted stagnation," it said.  Continued...
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