Reuters: Regulatory News: IMF unveils new strategy to detect brewing financial crises

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IMF unveils new strategy to detect brewing financial crises Sep 21st 2012, 19:59 WASHINGTON, Sept 21 | Fri Sep 21, 2012 3:59pm EDT WASHINGTON, Sept 21 (Reuters) - The International Monetary Fund said on Friday that it has adopted a new strategy to help detect problems in financial systems around the world before they develop into a fullblown crisis like the one in 2007-09. "Given the critical importance of financial systems for economic growth and stability, it is essential to have effective financial surveillance to enable the early detection of systemic risks and provide timely macrofinancial policy advice," IMF Deputy Managing Director David Lipton said in a statement. The International Monetary Fund has been criticized for failing to blow the whistle loudly enough on loose U.S. lending practices that lend to a runup in home prices. When the U.S. bubble burst, the 2007-09 financial crisis followed, crippling economic growth in the United States and economies around the world. Since then, the IMF has paid increased attention to financial systems in its surveillance efforts, "but the need to adapt its analyses and policy advice to a rapidly changing and increasingly complex terrain remains," Lipton said. The three pillars of the IMF's strategy include improving its analysis and policy advice, upgrading its instruments of financial surveillance and speaking more actively and candidly to national authorities about potential problems. In the first area, the IMF said it was developing policies to contain the "sovereign-bank feedback loop", prevent excessive global deleveraging, and enhance the complementarity of monetary, macroprudential, and microprudential tools. The Fund will upgrade its surveillance tools by further integrating the risk of cross-border spillovers in consultations with member countries and by conducting surveillance on clusters of financially-interconnected countries. The IMF will "increase the traction of policy advice by engaging more actively and candidly with national authorities and by deepening collaboration with other stakeholders, such as by serving as a global macroprudential facilitator and a systemic risk advisor," Lipton said. Link this Share this Digg this Email Reprints

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