By Jeffrey Hodgson and Claire Sibonney
TORONTO Oct 25 Unfinished financial reforms are
hampering recovery in key parts of the global economy and
weighing on economic growth, the head of the International
Monetary Fund warned on Thursday.
In a speech in Toronto, IMF Managing Director Christine
Lagarde urged world leaders to "do whatever it takes" to rebuild
the world's financial system, which is still recovering from the
2007-2009 financial crisis and has been further weakened by the
euro zone debt crisis.
The global financial crisis prompted an overhaul of
regulation in almost every part of the financial system from
over-the-counter derivatives to bank capital requirements.
But Lagarde said the global financial system was still not
functioning well and there were powerful industry groups working
against the implementation of the new rules.
"There are many vested interests working against change and
push-back is intensifying," Lagarde told the Canadian
International Council, according to prepared remarks.
"It is interesting how some banks say the new regulations
will be too burdensome, but then spend hundreds of millions of
dollars lobbying to kill them," she added.
Lagarde said progress was needed for financial institutions
that are viewed as too big to fail and she called on regulators
to coordinate and align their rules.
"Most countries have committed to adopt some or all of the
new regulations, and some have moved further ahead with their
own national policies," she said. "The challenge now is to
proceed to the end of the reform path all together."
Bank of Canada Governor Mark Carney said it was time to end
the too-big-to-fail problem, "so that the shareholders,
bondholders and management bear the consequences of the
financial system's mistakes rather than the taxpayers."
Carney was referring to a situation where a bank becomes so
big that it is too costly to let it fail, requiring a government
Lagarde said later about 75 percent of needed financial
reforms had been agreed on by countries but not implemented. An
initial enthusiastic drive by regulators to strengthen the
financial system had now faded, she added.
"What is of most concern to me is the general fatigue" that
has set in, she said. "If you ask me how much has been done, I'd
say a good 75 percent of the reform work has actually been
prepared and done, and you are in this 25 percent last push."
Lagarde welcomed recent calls by euro zone leaders to build
a new system of bank supervision led by the European Central
Bank, as a step toward a banking union where euro zone countries
would back problem lenders.
She said moving toward a banking union was a necessary step
for the troubled 17-nation currency bloc.
"We look forward to more details about the scope of this new
supervisor and to more news about direct bank recapitalization,"