Huw Jones London
Progress in completing banking reforms to plug gaps highlighted by the 2008/09 financial crisis was too slow and was being hampered by fierce industry lobbying, the International Monetary Fund said yesterday.
IMF managing director Christine Lagarde said banks were holding more capital now than they did in the run-up to the crisis when taxpayers had to shore up the sector. “The bad news is that progress is still too slow, and the finish line is still too far off.”
While reforming banks was a complex task, progress was being held back by “fierce industry pushback” and fatigue that was bound to set in at this point in a long race.
“A big gap is that the too-big-to-fail problem has not been solved”, she said, referring to the belief in markets that governments will still step in to rescue the biggest banks to avoid the mayhem seen when Lehman Brothers collapsed in 2008.
The IMF estimated that the implicit subsidy or cheaper funding costs from being too big to fail amounted to about $70 billion (R723bn) in the US and up to $300bn in the euro zone.
Mark Carney, the chairman of the Financial Stability Board (FSB), a regulatory task force for the Group of 20, said he wanted the too-big-to-fail phenomenon “cracked by Christmas” but he faced challenges in Europe and Asia.
Lagarde also called for regulators across the world to agree on a framework for winding down big banks in trouble. “This is a hole in the financial architecture, and it calls for countries to put the global good of financial stability ahead of their parochial concerns.”
After the bruising experience of the financial crisis, trust among international regulators is not high enough as some countries continue to take extra initiatives on bank capital to keep local taxpayers off the hook.
The FSB is worried that measures like the Federal Reserve’s plans for extra capital requirements on foreign lenders in the US will split capital markets.
Lagarde warned of “the risks of fragmenting the global financial system and hampering the flow of credit to finance investment. But complexity is not an excuse for complacency and delay.” – Reuters