IMF Critical of Western Banking Regulations

Western governments have put in place banking regulations that could be “mutually destructive”, and undermine efforts to prevent bust banks from costing taxpayers billions of pounds, according to a report by the International Monetary Fund.

Policymakers representing the world’s biggest financial centres have failed to make the banking sector stand on its own two feet by ending implicit subsidies and co-ordinating rescue plans when multinational banks go bust, the Washington-based lender of last resort said.

In a hard-hitting report, it accused policymakers of falling short in their efforts to protect taxpayers from banks that are still too big to fail.

The IMF praised efforts to make banks more secure, particularly by forcing them to hold more capital and rules that restrict them from making risky loans.

A week before vital meetings of G20 ministers in Washington, it said efforts such as the Dodd-Frank Act and the Vickers report in the UK limited the scope for banks to embark on reckless lending and need a taxpayers’ bailout in the event of them going bust.

But in its Global Financial Stability Report, the IMF said the impact of a bank crash would be still be severe and could destabilise the international financial system.

It said: “In areas such as the implementation of resolution frameworks or structural reforms, countries have adopted policies without much co-ordination. These solo initiatives, even though individually justifiable, could add unnecessary complexity to the regulation and consolidated supervision of large cross-border institutions and encourage new forms of regulatory arbitrage.

via The Guardian

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