IMF urges global financial regulatory reforms

September 21st, 2011 - 9:44 pm ICT by IANS  

Washington, Sep 21 (IANS) Emerging economies should limit the build-up of financial imbalances to maintain resilience to future financial shocks as financial stability risks have risen sharply in recent months, the International Monetary Fund has suggested.

These nations should continue to build solid financial systems that will help develop their economies, the IMF said in a new analysis released Wednesday, asking policymakers worldwide to act swiftly and decisively on a series of policies.

Macroprudential policies can help contain system-wide risks in the financial sector, the IMF said in its latest Global Financial Stability Report suggesting financial markets have begun to question the ability of policymakers to command broad political support for needed policy actions.

Slower economic growth, market turbulence in Europe, and the credit downgrade of the United States have weighed on the global financial system, the IMF said.

The lack of progress to repair balance sheets has raised concerns about the financial health of governments in advanced economies, banks in Europe, and households in the United States, the report said.

In the US, there have been increased concerns about the longer-term sustainability of US government debt.

These concerns, if left unaddressed, could potentially reignite sovereign risks, with serious global consequences, the IMF said.

Many emerging markets are experiencing rapid loan growth and borrowing more money to finance their investments, the IMF said warning this could result in overheating pressures, a progressive buildup of financial imbalances, and worsening credit quality.

Should global stability risks further intensify, emerging markets could face sudden capital outflows and financial strains, it said.

Global financial regulatory reforms need to be concluded and implemented consistently across countries, the IMF said. This includes the treatment of systemically important financial institutions and market infrastructures, and addressing the challenges posed by the shadow banking sector.

A lack of decisive policy action to fix the causes and legacy of the financial crisis that began in 2008 has led to the current situation. While the path to a sustained recovery has narrowed, it has not disappeared, the IMF said.

(Arun Kumar can be contacted at arun.kumar@ians.in)

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