IMF’s Lagarde attacks financial sector for blocking reform
By Emily Cadman
The managing director of the International Monetary Fund has warned that progress to change the financial system has been “too slow” and blamed the industry for blocking reform efforts. Speaking on Tuesday at a conference on inclusive capitalism in London, Christine Lagarde said that behaviour in the financial industry had “not changed fundamentally in a number of dimensions since the crisis.” While acknowledging that the sheer complexity of the financial sector was one reason for this delay, the IMF chief also blamed what she called a “fierce industry pushback”.
Reeling off a list of recent scandals including Libor and money laundering, Ms Lagarde said that “some prominent firms have even been mired in scandals that violate the most basic ethical norms.” “While some changes in behaviour are taking place, these are not deep or broad enough. The industry still prizes short-term profit over long-term prudence, today’s bonus over tomorrow’s relationship,” she added.
In her speech, Ms Lagarde also said that ending the problem of banks being too big to fail was a priority, adding that tougher regulation and tighter supervision were necessary. The IMF chief was confident that new capital surcharges for banks deemed of systemic importance would work, adding that increasing the capital ratio by 2.5 percentage points could reduce the systemic risk of a trillion dollar bank by a quarter. “This is a big deal,” she said.
But beyond tighter regulation, Ms Lagarde also called for enforcement bodies to be given greater resources. “Rules are only as good as their implementation. This calls for greater resources, and independence, for the supervisors who perform such a vital public duty, day in and day out,” she said. Overall “more vigour” was needed across efforts to monitor the shadow banking sector, as well as better progress on cross-border issues. First on the agenda should be a framework on how to unwind megabanks in an “orderly way” in case of failure, she said.
“This is a gaping hole in the financial architecture right now, and it calls for countries to put the global good of financial stability ahead of their parochial concerns.”
from FT 27/5/14