IMF head welcomes new bank rules

The head of the International Monetary yesterday Fund Dominique Strauss-Kahn welcomed the announcement of new bank capital rules known as Basel III but said that enforcement was perhaps more crucial.

The IMF director general told the newspaper Il Sole 24 Ore that “Basel III goes in the right direction. There was an absolute need to re-draw the rules in the financial sector.”

This aspect was more important than potential negative effects on growth, he said in an interview, apparently referring to concerns that the extra effort for banks of holding increased capital would raise their costs and reduce their capacity to lend.

“But one must not forget that the new rules are only a part of the work on the financial sector, as the IMF has underlined several times since the beginning of the crisis,” the IMF chief said.

“Supervision is perhaps even more important. One can have the best rules in the world for banks, but if afterwards they are not subject to supervision, they are useless.”

In the United States the biggest reforms of the financial regulatory system since the 1930s were adopted in July. In Europe, finance ministers have recently adopted a landmark project to strengthen supervision with the creation of new cross-border bodies.

Mr Strauss-Kahn said that another key issue was dealing with crisis in banks operating on several markets.

The Basel III agreement, reached on Sunday, amounts overall to a tripling of top quality funds available to a bank to seven per cent of overall assets, or business, underwritten on its balance sheet.