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IMF chief: "Too-big-to-fail problem has not yet been solved"

Adam Berry

Christine Lagarde, the Managing Director of the International Monetary Fund (the main institution responsible for global financial stability), gave a speech at a conference in London recently where she said that progress on improving regulation of the banking system worldwide is "still too slow, and the finish line is still too far off."

In particular, she says that "the too-big-to-fail problem has not yet been solved" and that megabanks' are still receiving $300 billion in implicit bailout subsidy in the Eurozone and about $70 billion in the United States. She calls for "tougher regulation and tighter supervision" and in particular for stricter rules on bank capital. She also directly took aim at the activities of the princes of finance, saying that one reason for insufficient progress is the genuine difficulty of the task but that it also "stems from fierce industry pushback."

Altogether the analysis is hardly groundbreaking, but it is important to note the source.

The IMF has such an institutional reputation as a champion of global capitalism that plans for Lagarde to deliver a commencement address at Smith College were met with left-wing protests. We see here in part that the IMF isn't the institution people think it is. But we also see that, simply, there's a huge mismatch between the politics of bank regulation — currently dominated by industry lobbying efforts claiming that Dodd-Frank has gone too far — and the policy analysis, where very sober and moderate institutions are saying we haven't done enough.