June 14 (Bloomberg) -- Financial markets are now showing ``fragile stability,'' with the biggest risks to global economic growth stemming from the ``real economy,'' the head of an international group of regulators said.

``It now looks unlikely that the situation in the financial services industry may have implications upon the real economy,'' Bank of Italy Governor Mario Draghi, 60, the head of the Financial Stability Forum, told reporters today in Osaka, Japan. ``It looks like the risks for the real economy are coming much more from the real economy itself.''

Three months ago regulators thought solvency problems at large banks could undermine the financial-services industry, he said. Measures taken by the U.S. Federal Reserve to rescue Bear Stearns Cos. have alleviated these concerns, said Draghi, a former vice chairman at Goldman Sachs Group Inc.

Draghi's comments suggest that the worst of the financial market crisis that led to $390 billion in asset writedowns and mortgage losses and 83,000 job cuts at banks may be ending.

While financial market conditions improved ``somewhat'' in past months, ``strains remain,'' especially in money and credit markets, finance ministers from the Group of Eight countries, which asked the FSF to propose measures to improve market stability, said today in a statement in Osaka.

`Solvency Accidents'

``We may still have other solvency accidents, but it's unlikely that they will have the systemic implications we were foreseeing until mid-March,'' said Draghi.

Former Federal Reserve Chairman Alan Greenspan agreed that the impact of the financial market turmoil is waning.

``The worst is over in the financial crisis or will be very soon,'' the former Fed chairman said in remarks via satellite today to a conference in Mexico City. ``There is a reduced possibility of a large, intense recession.''

Greenspan said that one way to measure the end of the crisis is to follow the gap between the London Interbank Offered Rate and the overnight index swap rate. The spread narrowing past 25 basis points, near where it was on Aug. 8, will signal the end, he said. A basis point is 0.01 percentage point.

Gap Narrowing

Libor is a benchmark rate for loans between banks, while the so-called OIS rate is a measure of what traders expect for the Fed's benchmark rate. The spread between three-month Libor and the equivalent maturity OIS rate was about 69 basis points today, down from a high for the year of 90 basis points in April. It averaged about 19 basis points over the past five years.

Banks have shown that they can raise liquidity and capital, Draghi said, while adding that more losses from off-balance sheet assets remain a risk. ``There's still a lot of stuff that's still off balance sheet. And as this stuff will get back on balance sheet, more capital is going to be needed, even more than has been piled up today,'' Draghi said.

The G-8 today urged the London-based International Accounting Standards Board to speed up its review of accounting issues around off-balance sheet items. Any recommendations by the IASB, which provides financial reporting norms used in 109 countries, would be published for public consultation and need the approval of the foundation's 14-member board.

``Some markets have recovered, some markets are functioning. High-grade investment, bonds, bank lending is actually quite strong. And the plain vanilla securitization market is also working very well,'' Draghi said. ``Not so mortgage markets, not so high-yield, not so non-investment grade markets, not so LBOs, not so markets in general for structured and complex products.''

Howard Davies, former chairman of the U.K. financial markets regulator, said on May 2 the Basel-based FSF, which combines officials from central banks, supervisory authorities and finance ministries, should be strengthened and given the power to coordinate the activities of national regulators.

To contact the reporter on this story: Rainer Buergin in Osaka, Japan at rbuergin1@bloomberg.net.

Last Updated: June 14, 2008 07:34 EDT