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Debt markets have convulsed after finally recognising the extent to which credit discipline has deteriorated in recent years, the IMF's report stated. "The potential consequences of this episode should not be underestimated, and the adjustment process is likely to be protracted. Credit conditions may not normalise soon, and some of the practices that have developed in the structured credit markets will have to change." The practice of rolling together lots of different kinds of debt, including low quality US mortgage loans, and selling them on piecemeal in the global financial markets has diffused the responsibility for checking that the underlying loans are sound, the IMF said. The use of off-balance sheet funding vehicles has also made it harder to judge the creditworthiness of major banks. But it cautioned against making knee-jerk changes to the regulation of the debt markets. Greater transparency is needed, it said, "however, given the volume and complexity of the information that could potentially be provided, and the cost of providing it, it will be important to carefully consider the appropriate amount and type of disclosure needed." The most important financial institutions have enough capital to withstand the shock, it said, and global growth has been solid in 2006 and 2007, "though some slowdown could be expected". http://news.independent.co.uk/business/news/article2996170.ece

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