Requiring surcharges on big banks to limit risk-taking could constrain the flow of credit when the economy needs it most, and countries ought to proceed carefully, the IMF said on Tuesday.
In a report released ahead of next week's spring meetings, the International Monetary Fund said it was not necessarily endorsing such surcharges, which have been discussed in countries including the United States and Britain, but wanted to suggest ways they could work effectively.
The idea is to require higher levels of capital for firms considered "too big to fail" as a way to discourage excessive risk-taking and prevent a repeat of the financial crisis that triggered the worst global recession since World War II.
"The adoption of capital surcharges and related regulatory measures is likely to represent an additional burden on the financial sector at a time when capital is scarce, and should thus be implemented carefully so as to ensure the availability of adequate credit to support the recovery," the IMF said.
This report, part of the IMF's regular global financial stability report, was separate from a hotly anticipated IMF study on how best to recoup the costs of the financial crisis, through methods such as assessing transaction taxes. That report is due to be presented to the Group of 20 nations next week.
The G-20 group of rich and emerging economies have agreed on broad principles guiding regulatory reform, including the need for higher capital requirements, but so far there has been little consistency in the proposals put forward by various countries, and the IMF has expressed concern about that.
The inconsistency poses a problem because many of the firms that are so large that their disorderly collapse could threaten financial stability have global operations. That means countries must have the means to work together to safely shut down too-big-to-fail firms.
At a press briefing on Tuesday, IMF economist Juan Sole said unless national regulators collaborate and share information about those large firms, "we're bound to underestimate or even miss all together some important sources of contagion."
The IMF also looked at proposals that would create a systemic risk regulator responsible for monitoring risk across the financial sector, rather than having separate regulators for commercial banks, investment firms, insurers and other types of companies.
That regulatory patchwork has been blamed for missing dangerous buildups in investments tied to U.S. home mortgages, and underestimating how falling house prices might trigger a global financial meltdown.
The Obama administration has proposed putting the Federal Reserve, the U.S. central bank, in that role, although some in Congress have objected to giving the Fed greater powers.
The IMF said while the benefits of strengthening systemic risk oversight were considerable, implementation may be tricky because it would require close coordination and clear delineation of responsibilities between new and existing regulators.
It also cautioned that an expanded mandate to oversee systemic risks encourages regulators to be more lenient with systemically important firms than they are with less critical ones.
"This suggests that, regardless of how regulatory functions are arranged, regulators' toolkits will need to be augmented to mitigate systemic risks," the IMF said.
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