Global Rules Make Financial System Safer to Sustain Growth

Policymakers must address institutions "Too Complex to Fail"

Cross-border solution for failed banks key issue

Financial innovation should serve society overall

As experts convened for seminars on the sidelines of the IMF and World Bank Annual Meetings, top practitioners and officials disagreed about the need for more or less regulation in the financial sector during the discussion on navigating the road ahead hosted by the IMF as part of its Program of Seminars in Washington, D.C. on October 9.

“The final objective is a financial system that will finance strong and sustained growth, but now I think the danger may be under regulation,” said José Viñals, the IMF’s financial counselor and director of the Monetary and Capital Markets Department.

Viñals said there is a lot to do be done on the regulatory front, since the new global rules on capital and liquidity, known as Basel III, will apply to traditional banks and not other types of financial institutions.

The Program of Seminars provides a forum during the Annual Meetings for the private sector, government officials, civil society, and staff from the IMF and World Bank to find solutions to the most pressing issues facing the global economy.

Raj Singh, chief risk officer for global insurance giant Swiss Re said there was a concern about over regulation, with implementation measures becoming more onerous and complex.

“The good news is we’re seeing pushing back and telling regulators maybe you’ve gone too far,” he said.

Regulatory reform

The need for regulatory reform received top billing in another seminar to identify structural reforms needed to boost growth and jobs. Sharan Burrow, general secretary of the International Trade Union Confederation, expressed frustration at the lack of “concrete proposals, except in the U.S.” to address a financial system which she viewed as being “too deregulated.”

Financial sector reform is the top priority for the advanced economies, according to IMF chief economist Olivier Blanchard, who was also a panelist at the structural reform seminar.

The key is finding the right balance so that regulation does not interfere with sustained growth.

Last week, the IMF said the financial sector remained the “Achilles’ heel” of the global recovery in its latest Global Financial Stability Report.

Too complex to fail the real issue

Since late 2009, the IMF has said the focus should be on whether a firm is too important or complex to fail, and its size—as...