London: The head of the International Monetary Fund has urged individual countries to act fast and work together on financial regulatory reform, if the problem of preventing another crisis is to be tackled efficiently.
In a column published in the Financial Times on Thursday, Dominique Strauss-Kahn said he recognised the drive to fix the “failed regulatory model” that caused turmoil worldwide, but wrote it was essential that reform was co-ordinated.
“While there is a process of collaboration to bridge the problem of local regulators dealing with global banks, many countries are approaching bigger-picture reforms from different directions and at different speeds,” Strauss-Kahn wrote.
“In the process, a central lesson of this crisis is being forgotten: that co-ordination works better than unilateralism.”
G20 countries had been coordinating efforts to create a strong banking landscape, but the United States and other countries have also put forward separate proposals.
Among the plans are increasing capital and liquidity requirements; the possible separation of retail and investment banking activities; caps on size and potential levies on systemically important institutions.
Citing the example of regulators, who want to increase the quantity and quality of capital held by banks, Kahn warned this would be expensive for consumers and harmful for the global economy.
”If banks have to lock up pools of liquidity in every national jurisdiction, their capacity for intermediating capital across borders could fall, and their charges for doing so rise, to the detriment of the world economy.”
The IMF chief said regulators must look to handle the failure of complex financial institutions at the ”parent level.”
”Pending a global agreement, we have a system with holes and go-it-alone national approaches,” he wrote.
Kahn welcomed the work of financial standard regulators, the Basel Committee and the Financial Stability Board and urged faster international action to harmonise the rules that curb excessive risk taking and tackle border challenges.
“Time is of the essence in reaching an international agreement lest political patience with regulatory conclaves runs out and we enter a cycle of unco-ordinated policy, distorted capital flows and regulatory arbitrage,” he wrote.
The Basel Committee on Banking Supervision has proposed a wide ranging reform of its Basel II global bank capital accord to increase the amount of capital and liquidity banks must hold and lessen the need for more taxpayer bailouts in future crises.
The committee of central bankers and regulators from across the world is consulting on the reforms, dubbed Basel III, before finalising them by year end. They are due to take effect by the end of 2012 if economic recovery is assured.