IMF bolsters its financial expertise

• Pages: 341-346

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One of the big changes under way at the IMF is a stepped-up focus on financial sector issues. Called in to lead the effort is Jaime Caruana, former Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision. In a wide-ranging interview, he explains how the IMF will integrate the financial sector into its regular review of country policies, and weighs the new risks and complexities of the global capital markets.

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Giving the IMF's financial sector work a higher profile

In August, Jaime Caruana, former Governor of the Bank of Spain and Chairman of the Basel Committee on Banking Supervision, took up the reins as Director of the IMF's new Monetary and Capital Markets Department (MCM). Caruana, who has been a member of the Financial Stability Forum, also served as Director of the Spanish Treasury. Earlier, he worked in the private sector, heading up investment services and fund management companies for some 10 years. Laura Wallace of the IMF Survey spoke with him about the IMF's increased focus on financial sector issues, the global financial markets outlook, and simmering regulatory issues.

IMF Survey: You've been asked to head up a new IMF department that is meant to serve as a center of excellence on capital markets and financial sector work. What do you see as the main intrinsic challenges in MCM's work?

caruana: The first challenge is that we have to be on top of key trends in the financial sector and the markets. We're not market participants-we don't have a dealing room and we're not trading-and that means we'll have to develop a different kind of network. But, more important, we must help integrate all this knowledge into the mainstream work of the IMF, and that means collaborating better with the rest of the departments. Second, we have to provide member countries and area [the IMF's regional] departments with the support they expect in terms of both surveillance and capacity building. Third, we must keep, attract, and train the best people on a continuous basis. We have very good people in the department whose expertise and advice I rely on heavily.

IMF Survey: How will the IMF integrate capital market and financial sector work into its traditional macroeconomic surveillance?

caruana: We have very pragmatic proposals that have come out of an IMF task force that has studied the integration of financial issues into our Article IV consultations-our regular bilateral checks of members' economies. These proposals take an eclectic approach and have a few key elements: analyzing markets in a way that can extract relevant, early signals that would inform our policy dialogue with members; continuing and systematizing the kind of analysis that the IMF has been doing on the soundness and efficiency of financial sectors; and doing a thorough analysis of risks, including exploring the exposures, the probability of these risks, and their potential...