IMF Engages Middle East Policymakers on Financial Reform

New financial regulations will need to be internationally consistent

Strong supervision must be intrusive

Reform should take into account the region’s vulnerability to commodity cycles

“If you look at what went wrong in the advanced economies, it is that consolidated supervision failed and there was not enough cooperation between the supervisors of different countries where the banks operated,” José Viñals, Financial Counsellor and Director of the Monetary and Capital Markets Department at the IMF, said at a press conference following the July 12 event.

Fostering greater cooperation and better communication among financial sector supervisory authorities—within a country and cross-border—in good times is crucial, he said, because that can help stop problems from developing during bad times.

The conference “Reshaping International Financial Regulation—Implications for the Middle East and Central Asia Region” brought together senior policymakers from the region and representatives from international financial institutions. The meeting generated a lively discussion on the region’s experience during the crisis and on lessons that could inform the financial sector regulatory reforms currently under consideration by the Group of Twenty (G-20) industrial and emerging market countries.

Crisis impact contained

Banks in the Middle East were less affected by the crisis than their counterparts in advanced economies: they were more focused on traditional lending and savings and generally less integrated into global financial markets, so contagion was lower. Many of the region’s governments also enacted prompt and forceful policies, which helped contain the impact of the crisis.

“This region has a long history of banking, and banks are doing relatively well,” said Adnan Mazarei, Assistant Director of the IMF’s Middle East and Central Asia Department.

But the crisis has brought to light some old shortcomings, including excessive dependence by banks on name lending (a regional practice whereby loans are extended to influential business families on the basis of their name) and inadequate supervisory powers to take early remedial action. Addressing these problems requires improved regulation, but also hard-nosed supervision, Mazarei noted.

At the seminar, participants discussed several global regulatory initiatives currently under way, some of which are especially relevant to the Middle East and Central Asia region:

• Reducing cyclicality in...