The International Monetary Fund has warned that governments may face future risk of financial crisis if more is not done to regulate the financial sector.
The IMF wants a larger ‘net’ of regulations to be cast over finance activities, with particular attention paid to the traditional banking sector and issues around raising capital as well as liquidity standards of banks. The IMF also stated that governments need to take a comprehensive approach to legislating regulations when it comes to financial institutions and the world economy.
"It is essential to make progress with the overhaul of financial regulation in order to avoid planting the seeds of another crisis," said the IMF’s Director Monetary and Capital Markets Department, Jose Vinals.
The IMF warned that while some regulations are being put in place, they deal with a subset of the financial system, "Many of the structural characteristics that contributed to the build-up of systemic risks are still in place today," the IMF cautioned in their report.
The IMF have been particularly worried by the large-scale government bailouts, which add fuel to the ‘moral hazard’ that some firms and certain market sectors as simply too big to fail.
The IMF also wants to see greater progress made on enforcing regulations across the financial system as well as surveillance of financial markets to ensure regulations are being complied with.
They also urge regulators to implement globally consistent standards, as without a level playing field, the global financial system will be prone to crisis.
