Banks' powers in spotlight as IMF readies report

TORONTO, June 3 (Reuters) - Top financial institutions could be held more accountable for the power they wield over world economies in possible new rules to prevent meltdowns like the one that triggered the global recession.

Laura Kodres, chief of the IMF's global financial stability division, told analysts in Toronto that the global lender was preparing a set of proposals on how to mitigate systemic risk in top financial institutions, and would submit its report to the G20 countries in November.

She made clear that the cost of capital might have to rise commensurate with the power that an individual institution wields, given that some of the world's most influential banks have considerable sway over one or more economies.

"Systemically important institutions should pay for the systemic risk they generate," said Kodres, pointing at major institutions whose failures during the global recession have reverberated throughout society and from country to country.

"The G20 has asked us to produce a document explaining how we would approach systemically important institutions, markets and instruments and it will be discussed in the November meeting of the G20."

The G20 comprises rich industrial nations, as well as influential emerging economies like China, Russia and Brazil.

Kodres said the report will look at how best to monitor banks and other institutions and help prevent meltdowns like the U.S. subprime crisis.

It estimates global write-downs by banks and other financial institutions could reach $4.1 trillion as major institutions cleanse their balance sheets of bad loans and other toxic assets.

Those losses could rise or fall, depending on how fast the global economy recovers and is fortified against subsequent economic shocks. New IMF estimates are due in October.

The IMF, which projects a 1.3 percent decline in global economic activity this year and a gradual recovery in 2010, says the size of total credit losses could be lower if forceful and well-targeted actions are taken.

That means many measures at different levels. But Kodres said a fundamental part of that means designing tools to monitor and control risk at major transnational institutions.

"We are working with the November deadline and attempting to at least provide some principals, some guidance, maybe some suggested tools, that come from our reports in order to think about how we would go about imposing some sort of mitigant on systemic risk," she said.

"My guess is that once you've found somebody that's systemically important in your own country, and they happen to be a global institution, they are probably systemically important somewhere else," she said. (Reporting by Pav Jordan; editing by Janet Guttsman)