IMF boss warns threat from big banks remains

INTERNATIONAL Monetary Fund (IMF) managing director Christine Lagarde yesterday pushed for further reform of the banking sector, warning the threat from large banks was “more dangerous than ever”.

Speaking in New York ahead of next week’s IMF Spring, Lagarde said the priority worldwide had to be cleaning up the banking sector by recapitalising, restructuring or shutting down banks if necessary.

“We simply cannot have pre-crisis banking in a post-crisis world. We need reform, even in the face of intense pushback from an industry sometimes reluctant to abandon lucrative lines of business,” she said.

Almost five years since Lehman Brothers collapsed, Lagarde claimed the risks from the banking sector remained high: “The ‘oversize banking’ model of too-big-to-fail is more dangerous than ever. We must get to the root of the problem with comprehensive and clear regulation,” she added.

Despite urging financial sector reform, Lagarde said central banks should not yet start pulling back on their extraordinary policies aimed at keeping the economy moving.

There were signs that financial conditions are improving, Lagarde said, but she said those changes were not yet translating into improvements in the real economy. “In present circumstances, it makes sense for monetary policy to do the heavy lifting in this recovery by remaining accommodative,” Lagarde said ahead of the meetings of global finance chiefs next week.

Lagarde said that a three-speed recovery was underway, led by fast-growing emerging economies, followed by countries such the US that are on the mend, and with the Eurozone and Japan trailing.