International Monetary Fund managing director Christine Lagarde has warned big banks are “more dangerous than ever” and called on Europe to recapitalise, restructure or shut down its biggest lenders as part of urgent reforms.
The Telegraph says Lagarde was speaking in New York ahead of the IMF’s Spring meeting next week.
She said: “In too many cases – from the United States in 2008 to Cyprus today – we have seen what happens when a banking sector chooses the quick buck over the lasting benefit, backing a business model that ultimately destabilises the economy. We simply cannot have pre-crisis banking in a post-crisis world.
“We need reform, even in the face of intense pushback from an industry sometimes reluctant to abandon lucrative lines of business.”
She added: “The ’oversize banking’ model of too-big-to-fail is more dangerous than ever. We must get to the root of the problem with comprehensive and clear regulation.”
Lagarde said in the periphery, many banks are still in an early stage of repair with not enough capital and too many bad loans on their books. Outside the periphery, there is a need to shrink balance sheets, reduce reliance on wholesale funding, and improve business models.
She said: “So the priority must be to continue to clean up the banking system by recapitalising, restructuring, or – where necessary – shutting down banks.”