A group of executives from leading Wall Street financial firms is calling for reforms to address systemic issues revealed by the credit crunch.

The so-called Counterparty Risk Management Policy Group has released a report calling for, among other things: a reconsideration of the standards for consolidation under US GAAP “that contemplates a significant shift of currently off-balance sheet status entities to on-balance sheet status.”

It also suggests measures to better understand and manage high-risk complex financial instruments, including: the establishment of standards of sophistication that would apply to participants in the market for high-risk complex financial instruments; enhanced disclosures; improved sales and marketing practices; and, strengthened issuer and loan diligence.

Additionally, it calls for enhancements to risk management with particular emphasis on sound corporate governance, risk monitoring, and fostering a single integrated discipline for managing capital adequacy and liquidity and funding.

Finally, it outlines what it calls a series of “truly sweeping measures” to enhance the resiliency of financial markets generally and the credit markets in particular with special emphasis on the OTC derivatives market and the credit default swap market. “The recommendations in [this area] including the call for the prompt creation of a clearing corporation that would begin clearing credit default swaps in the fourth quarter of 2008 – are extremely ambitious,” it says.

The report also discusses what the group believes are a number of important “emerging issues”. While it does not have recommendations for dealing with these issues, The group says that it does point “to subject matter that will require close attention during the period ahead on the part of policy members and practitioners alike.”

“Achieving the sweeping enhancement and reform set forth in the report will require collective and concerted industry-wide initiatives, supported by progressive and enlightened prudential supervision,” it says, adding, “In the private sector, greater financial discipline at individual institutions must be reinforced by a renewed commitment to collective discipline in the spirit of elevated ‘financial statesmanship’ that recognizes that there are circumstances in which individual institutions must be prepared to put aside specific interests in the name of the common interest.”

It notes that this sort of commitment may require market participants to make costly investments in infrastructure, change business processes, and accept changes to market practices, that in the past have generated sizeable revenues but at the cost of weakening the underlying foundation of the markets. “Costly as these reforms will be, those costs will be minuscule compared to the hundreds of billions of dollars of write downs experienced by financial institutions in recent months to say nothing of the economic dislocations and distortions triggered by the crisis,” it says.

The group urges all major financial institutions to analyze their internal policies, procedures and practices against the recommendations and reforms outlined in the report.

Commenting on the report, Gerald Corrigan, managing director, Goldman Sachs & Co., and co-chairman of the CRMPG, said, “it is both necessary and urgent that the private sector, in collaboration with the official sector, begin immediately to implement these reforms, some of which will take well over a year to be fully accomplished.”