What keeps IMF and World Bank so silent on bank regulations that go against their respective mission?
Sir, you argue, “If the IMF and the World Bank were to disappear, the absence of their combination of expertise, credibility and cash would soon be painfully obvious.” “Bretton Woods twins need to keep adapting” July 18.
Absolutely but they would also be sorely missed as the right places for having serious discussions on many serious issues that can affect our economies.
But in that respect both have also been somewhat amiss of their responsibilities. The Basel Committee’s credit risk weighted bank capital requirements, which so dangerously distort the allocation of bank credit, have not been sufficiently discussed.
The World Bank, as the world’s premier development bank, knows that risk taking is the oxygen of any development. With this in mind it should loudly oppose regulations that so much favors the safer present’s access to bank credit over that of the riskier future. Doing so dooms our economies to a more obese less muscular growth.
And IMF should know that all that piece of regulation really guarantees, is especially large bank crises, caused by especially large exposures to something perceived or decreed as especially safe, and that turn out to be especially risky, while being held against especially little bank capital.
Why the twins’ silence? Perhaps too much group think, perhaps too close relations with regulators, something that could make this topic uncomfortable to discuss.
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