Banks have “fiercely” resisted reform and have not changed since the financial crisis, according to International Monetary Fund managing director Christine Lagarde.
In a speech to the Inclusive Capitalism conference in London this morning, Lagarde said the financial crisis had caused a “major course correction” based on the understanding that the financial sector should “serve not…rule the economy”.
She said: “The behaviour of the financial sector has not changed fundamentally in a number of dimensions since the crisis. While some changes in behaviour are taking place, these are not deep or broad enough. The industry still prizes short-term profit over long-term prudence, today’s bonus over tomorrow’s relationship.”
The internationally agreed Basel III rules will introduce more stringent capital and liquidity requirements on banks. Lagarde said they will make the financial system “safer, sounder and more service oriented”, but that industry opposition was slowing progress.
“The bad news is that progress is still too slow, and the finish line is still too far off,” she said.
“Some of this arises from the sheer complexity of the task at hand. Yet, we must acknowledge that it also stems from fierce industry pushback, and from the fatigue that is bound to set in at this point in a long race.”
Despite banks being handed large fines for Libor manipulation, tax evasion and other regulatory or legal offences, Lagarde said banks were only just beginning to realise that “private misbehavior can have a broader social cost”.
In April 2013, Lagarde warned that big banks are “more dangerous than ever” and this morning she said that the risk posed by banks that are too big to fail remains. She said the implicit government subsidy which comes from being too big to fail now amounts to over $70bn (£41bn) in the US, and up to $300bn (£178bn) in Europe.
In a speech peppered with references to Aristotle, Wilde and Churchill, she added that it was vital that reform is completed.
She said: “We should not give up just because it is hard. Let me quote John Fitzgerald Kennedy here, who famously said that “we choose to go to the moon not because it is easy, but because it is hard”.”