IMF seeks new role, more teeth
After failing to foresee the biggest financial crisis of its existence, the International Monetary Fund wants more power to probe individual companies to see if they pose the type of broad risks that crippled the world economy in 2008.Updated: May 20, 2010 21:00 IST
After failing to foresee the biggest financial crisis of its existence, the International Monetary Fund wants more power to probe individual companies to see if they pose the type of broad risks that crippled the world economy in 2008.
The new authority being advocated by IMF staff would represent an important shift from the agency’s traditional role of analysing and aiding national economies to serving as a sort of global overseer, particularly when it comes to companies considered so connected around the world that their failure could undermine the economy.
The events of the last two years including the mortgage scam in the U.S. housing market have convinced IMF staff that their ability to monitor such institutions has fallen behind.
“We need to learn more about that, and to learn about it we need more data, including from a rather small number of the large financially systemic institutions,” IMF Managing Director Dominique Strauss-Kahn said in an interview this week.
“The mandate of the fund is to have surveillance of countries, but today you have institutions as big, maybe bigger, than many countries,” he said. “How can we have global surveillance without having data on what happens with those large financial institutions?”
The idea is part of an evolving discussion over the IMF’s post-crisis role.
But the proposed expansion of the fund’s surveillance role may prove controversial, with financial industry representatives saying they worry about data breaches and over-regulation. At the same time, economists and others say closer attention to “systemic risk” is among the most important steps needed in the wake of the crisis.
Though IMF has not listed the sorts of companies it wants to monitor, major banks like Citibank, mortgage institutions like Fannie Mae, and insurance companies like AIG have been cited as organisations that are “too big to fail”.
“From time to time the IMF has sought to get itself beyond its responsibility of dealing with specific country-to-country economic issues, and generally they have not gotten far as it is not in their charter or their competence,” said Wayne Abernathy, executive vice president for financial institutions policy at the American Bankers’ Association.
In this case, the suggestion stems from some soul searching as the agency failed to predict the most severe economic meltdown since it was founded. “We were not vocal enough” in announcing the risks, Strauss-Kahn said. He feels that expanding the fund’s authority would help officials understand better how firms are connected and where broader risks are developing.
Such a change would have to be approved by the IMF’s executive board, made up of countries that fund the organisation. A Treasury spokesperson said the U.S. had no comment on the idea.
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First Published: May 20, 2010 20:48 IST