GLOBAL - Financial markets will take approximately 12-18 months to recover and require "fundamental reform" along with their regulation as a result of the new financial framework created by the credit crunch, according to the OECD.

Officials from the Organisation for Economic and Cooperative Development's (OECD) committee of financial markets (CFM) gathered in Vienna over the last two days to discuss the crisis initially caused by the collapse of the US subprime market, and concluded the existing global regulatory framework is no longer able to cope with the needs of the market.

More specifically, the OECD believes a "more modern and dynamic approach to financial regulation is needed", as Thomas Wieser, chair of the CFM and director-general at the Austrian finance ministry, said the regulatory framework "reflects the ‘simple' world before globalisation" and "the new division of labour has partially led to global imbalances".

"We need to ensure we have a cooperative framework for financial markets that takes account of new realities, and enhances stability, whilst retaining efficiency," said Wieser.

Officials have suggested the "fear factor" means long-term investors, such as pension funds "may not return to markets within a short time frame".

Moreover, as part of this fresh focus, a greater emphasis must be placed on creating and promoting "a new culture of risk awareness and financial education" according to the OECD committee, as officials note it is not just the investment banks which have been heavily affected by the recent financial instability of the subprime market, but pensions investors too, and "the world is moving to a situation where individuals bear more and more risks without being necessarily able to cope with them".

According to details of an OECD report also published today entitled - the subprime crisis: size, deleveraging and some policy options - the actual market prices attributed to the collapse of that sector in the US are now "unreliable" and make it much harder to estimate to calculate the likely losses so far seen.

That said, the OECD estimates whereas it previously predicted the losses would amount to $300bn (€750bn), the likely figure without including write-downs is around $422bn, of which $90bn is with US banks.

If losses do reach this level, the recapitalisation of banks would be "essential", either through private finance or government intervention may be needed perhaps through mechanisms such as zero coupon government bonds, suggests the CMF.

An extra-plenary session with financial market participants also revealed the widespread outlook for financial markets and stability is still "uncertain" and will be for at least 12-18 months before markets recover.

The CMF committee is made up of officials from OECD central banks, finance ministries and other financial authorities.

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