Only global solution can save financial markets, says expert

Oct 10, 2008, 12:37 GMT

Amsterdam - Only a comprehensive international solution can save the global financial markets, Arnoud Boot, professor of Corporate Finance and Financial Markets at the University of Amsterdam said on Dutch television on Friday.

Boot was commenting on continued losses at the Dutch stock exchange on Friday.

By 1:30 pm (1130 GMT) AEX, the main Dutch index, had lost more than 6.56 per cent and stood at 263.64 points. Since last week, the AEX has lost 80 points - representing some 80 billion euros (109.16 billion dollars).

Thursday night Dutch finance minister Wouter Bos (Labour) announced the government would make 20 billion euros available to shore up the liquidity of banks embattled by the global financial crisis.

The funds would be made available for all financial firms that need it, including insurance groups.

Dutch ING Bank on Friday said it was an 'important step', but added its own financial situation was such that it did not need to make use of the new funds.

The other big Dutch banks, Rabobank and SNS Bank, also praised the plan while emphasizing their institutions were 'rock solid' and therefore did not require extra liquidity.

'Banks apparently fear that using the fund would stigmatize them,' Boot said.

'This is not good. All banks, including the ones that are rock-solid, should in fact use this fund. The extra capital provided by the government has a double positive impact, raising both liquidity and credibility.'

Boot added the government's 20 billion fund is 'a step in the right direction', but said more similar steps had to be taken in the Netherlands 'and internationally, within the next 72 hours.'

Meanwhile analysts said the continued drops of the AEX index might be explained from the lack of liquidity in the banking world.

The stock exchange remained the only place for individuals and firms to increase liquidity, by selling more stock.

Insurer Aegon dropped most on Friday (down 12.54 per cent), followed by steelmaker Arcelor Mittal (10.44 per cent) and employment agency USG People (down 10.11 per cent).