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IMF urges tighter global regulations

Tuesday 20 September 2011 - by Andrew Hickley

Worldwide regulators should push forward with planned regulatory reforms in an effort to safeguard against an increasingly volatile financial sector, the International Monetary Fund has urged.

In its World Economic Outlook released on Tuesday, the IMF says that a heightened focus on systemic risks is "critical" with the financial sector currently at the "front line of market volatility".

The international lender calls for European banks to raise capital above Basel III requirements and well in advance of the implementation date of 2019.

It also reiterates managing director Christine Lagarde's recent calls for EU banks to urgently raise their capital levels. While it does not refer to any individual banks, the report argues that if capital cannot be raised privately, the banks should either accept taxpayer money, restructure or even close.

In relation to the US, the IMF says that with interest rates likely to remain low, the Dodd Frank Act must be implemented promptly to prevent excessive risk-taking and to guard against a build-up of excessive financial leverage.


The report argues: "The best response to financial stability challenges posed by low interest rates lies in a sound framework of regulation and supervision."

A "timely allocation of resources" should be distributed to regulators to ensure the Dodd Frank rules are implemented as planned, it says.

The IMF also argues that further progress needs to be made in identifying systemically important institutions and in creating the regulatory standards they will adhere to.

While the Basel Committee on Banking Supervision recently put forward draft proposals to introduce a capital surcharge for large firms, the IMF says that regulators should do more work to identify which firms would be subject to these higher capital levels.

The report says that work to address cross-border resolution issues, which were also recently proposed by the Financial Stability Board, must be progressed.

Both of the measures, which are designed for systemically important financial institutions, should not just be limited to banks, it adds.


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