Governments around the world have taken dramatic action stabilize the global economy, but much more work remains to be done, according to Lombard Odier Darier Hentsch, the Swiss-based private bank.

The implosion of the US subprime mortgage market has forced governments around the world to take wide-ranging action to prevent the collapse of financial institutions.  While dramatic measures such as recapitalisation schemes have been welcomed, they have also been dizzyingly expensive: for example, Lombard Odier predicts that in 2009 and 2010, the US deficit could exceed 10 per cent of its GDP.  

With such huge financial commitments, central banks and governments will be “on a knife-edge,” said the firm.  However, as they attend to budgetary exigencies, the authorities must also address the underlying causes of the crisis.  “These painful crises must also allow for the lasting solution of the problems,” said Lombard Odier. 

After the part played in the sub-prime crisis by the spread of risk, Lombard Odier is calling for the direct responsibility of credit institutions to be restored.

According to the firm, conflicts of interest between rating agencies and lenient auditors, that allowed the spread of “toxic” financial products, have not yet been resolved.  Accordingly, “prudential banking regulations, statistical risk analysis models and accounting principles must be reviewed,” Lombard Odier said.

Founded in 1796, Lombard Odier Darier Hentsch has its roots as a Genevan firm of private bankers.  Today the firm provides wealth management and financial services across a network of 25 offices in 18 countries.