Banks still deemed ‘too big to fail’
The International Monetary Fund (IMF) has warned that policymakers have failed to make the banking sector independent of public funds.
Implicit subsidies and coordinating rescue plans remain in place if multinational banks go bust, which could cost the taxpayer billions of pounds in the event of another crisis. IMF’s Global Financial Stability Report says that lenders are benefitting from low borrowing costs because all concerned are certain of a bailout if they get into trouble.
The report says: ‘Countries emerged from the financial crisis with an even bigger problem. Many banks were even larger than before and so were the implicit government guarantees’.
Total subsidies in the US, Japan, Eurozone and UK banking sectors amount to $590 billion.
The IMF agrees with security efforts such as forcing banks to hold more capital and rules to restrict them from making risky loans. However, the report adds: ‘In areas such as the implementation of resolution frameworks or structural reforms, countries have adopted policies without much co-ordination’.