WASHINGTON, United States, Sept 5 – Only 10 years out from the worst global financial crisis since the 1930s, commitment to regulation to avoid the next one, and to the cooperation that prevented a new depression, is waning, the IMF chief warned Wednesday.
Failure to learn the right lessons from the 2008 banking crisis, means new “murkier activities” may slip by unchallenged, said Christine Lagarde, managing director of the International Monetary Fund.
“The bottom line is this: We have come a long way, but not far enough. The system is safer, but not safe enough,” Lagarde said in a blog post on the 10th anniversary of the failure of US banking giant Lehman Brothers, which ignited the crisis.
Despite avoiding the worst-case scenario of a worldwide depression following “a frenzy of reckless risk-taking,” some problems have not been addressed, including banks that remain either too large or do not have a large enough cash buffer.
And, Lagarde said, “perhaps most worryingly of all, policymakers are facing substantial pressure from industry to roll back post-crisis regulations.”
Public anger over the massive sums to bail out banks, while no bankers were held responsible has contributed to “the backlash against globalization … and the erosion of trust” in government, she said.
She also lamented the “fading commitment to international cooperation — ironically, the very kind of cooperation that prevented the crisis from becoming another Great Depression.”
The IMF chief highlighted two areas in need of reform: improved ethics, and more women in the financial sector.
Lagarde, who was one of the rare female finance ministers before taking the helm of the IMF, has long been a proponent of improving rights and education for women as a path to improving economic performance.
In finance, she argued, “evidence suggests that female leaders tend to be more prudent, less inclined to the kinds of reckless decision-making that provoked the crisis.”
“As I have said many times, if it had been Lehman Sisters rather than Lehman Brothers, the world might well look a lot different today.”
In addition, “the financial sector still puts profit now over long-range prudence, short-termism over sustainability,” she said, even as “ethical lapses have clear economic consequences” and cannot be resolved by good regulation and supervision alone.