Banking Rules Insufficient
Financial leaders who have recently signed on new banking rules may be counting their chickens before they’ve hatched. According to the IMF, such rules are not going to be able to help vis-à-vis the global financial crisis. So what is the solution? The IMF is setting out “new tools” through which to examine how a financial body can affect the whole system and from there work out its “systemic importance” which will enable them to make a company pay “a proportional fee to guard the entire system.
Financial Bodies to Pay Up
A change in the system clearly has to take place. Currently the situation is such that the financial crisis is burdening everyone, resulting in a “full-blown crisis of the system.” But it’s the financial bodies that need to start taking responsibility for this. They need to pay up and stop burdening the central banks which end up bailing them out. So the solution, according to the IMF, probably has to be some kind of tax on these bodies. Indeed, Dominique Strauss-Kahn (IMF Managing Director) insists: “we need better resolution mechanisms to end the scourge of too-big or too-important to fail [firms], including along the critical cross-border dimension.” But so far, efforts to make this happen have not been fruitful.
Global Recovery News: Frail
Indeed, if efforts are not successful in this vein then it will deeply impact the recovery of the global economic crisis. According to the IMF the recovery will suffer due to this “moral hazard,” which is an “apathy cultivated when lenders are confident they’ll be bailed out.” Governments need to start pushing financial institutions to eliminate bad assets and properly assess their balance sheets.
So it’s important that everyone pitch in. No one should be sitting back on their laurels. All institutions have responsibility to ensure the smooth recovery of the global economy.
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