European leaders will push on Wednesday for an overhaul of global financial structures after Asia joined western bastions of capitalism in bailing out banks to avert financial meltdown and tackle looming recession.
EU leaders meet in Brussels after commiting 2.2 trillion euros ($3.02 trillion) to rescue European banks and break a logjam in money markets that has choked off lending in the worst financial crisis since the Great Depression. Washington followed with a similarly radical state intervention in the marketplace.
"The IMF has to be rebuilt…for the modern financial world," British Prime Minister Gordon Brown told reporters in Brussels.
German Chancellor Angela Merkel also told her parliament new international financial rules were needed and the International Monetary Fund must take on a bigger supervisory role.
The United States put its shoulder to the wheel on Tuesday by offering to take $250 billion worth of stakes in nine top banks, an astonishing move in the home of free market capitalism which suggests an appetite for new regulation even there, with a U.S. presidential election less than three weeks away.
Even if a banking collapse has been averted, a recession has not, a fact markets quickly turned their focus to. Most Asian equity markets were 1-3 percent lower and European stocks shed nearly 2 percent.
Southeast Asian nations backed by Japan, South Korea, China and $10 billion from the World Bank, were the latest to join the global rescue effort, agreeing on Wednesday to create a multi-billion fund to help banks.
The fund will buy up toxic debts and support banks in the region, Philippines President Gloria Macapagal Arroyo said.
NEW 'BRETTON WOODS'
U.S. Treasury Secretary Henry Paulson said on Tuesday government part-ownership of banks was "objectionable" but vital to tackle a crisis, which began with a U.S. housing market collapse and now threatens economies worldwide.
The success or otherwise of the unprecedented co-ordinated government moves remained unclear.
Lending rates showed some sign of falling, but traders said there was no real evidence of lending between banks for anything but short periods with so much central bank cash on offer.
The economy is dominating the U.S. presidential campaign, which sees a final debate between the candidates on Wednesday.
Democrat candidate Barack Obama has accused Republicans of presiding over unfettered financial deregulation while John McCain has sought to regain his footing on economic issues after drawing criticism for saying U.S. fundamentals were strong.
European Commission President Jose Manuel Barroso told reporters: "It is critically important that the United States and the European Union appear together facing this situation and coming with concrete proposals for global regulation."
Leaders including French President Nicolas Sarkozy and Britain's Brown say the global turmoil shows the world's post-World War Two financial architecture is no longer adequate.
As current EU President, Sarkozy will seek the backing of the other 26 EU states to hold an international conference as early as next month on reforming the world financial order put in place by the 1944 Bretton Woods conference.
Brown is also advocating a "new Bretton Woods".
Measures should entail a rethink of supervisory rules on markets, banks, mortgage firms, hedge funds and private equity. Other reforms in the pipeline range from higher guarantees for bank deposits to clampdowns on executive pay.
Japanese Prime Minister Taro Aso said on Wednesday a meeting of world leaders would be pointless without fresh commitments to inject public funds into financial firms.
Greece said it too was prepared to support its banking system with up to 28 billion euros.
RECESSION THREAT
Two top Federal Reserve officials flagged risks to the world's biggest economy and Bank of Japan Governor Masaaki Shirakawa said global markets remained under severe strain.
"Growth in the fourth quarter appears to be weaker yet, with an outright contraction quite likely," Janet Yellen, President of the Federal Reserve Bank of San Francisco, said on Tuesday.
Governments have pledged around $3.2 trillion — more than the annual output of Germany — in a variety of schemes that guarantee bank deposits, bank-to-bank lending, and the purchase of new securities to shore up bank capital.
That money is on top of open-ended central bank commitments to inject funds to get interbank lending moving again and a coordinated round of interest rate cuts last week.
On the money markets in London, interbank rates for overnight dollar deposits were indicated in a range of between 1 and 2.5 percent, compared with around 1.5-3 percent early on Tuesday.
