IMF warns U.S. must keep reforming financial system
WASHINGTON — The United States financial system is stronger than it was five years ago but risks remain and regulators need to complete reforms, while policymakers should resist efforts to roll back some of the changes, the International Monetary Fund said Tuesday.
In its first major assessment since 2010, the IMF said the U.S. has made strides in improving its oversight of financial firms. Many of those actions were mandated by the Dodd-Frank financial reform law, which was enacted five years ago this month in the wake of the 2008 financial crisis.
GOP criticism
Republicans have been highly critical of the law. They have successfully softened some of the regulations and have pushed to water down more, including trying to weaken the powers of the Consumer Financial Protection Bureau created by the law.
This week, Rep. Jeb Hensarling, R-Dallas, chairman of the House Financial Services Committee, said his panel would hold hearings in the coming weeks to assess the Dodd-Frank law.
But the IMF said that the Dodd-Frank reforms have been positive and that U.S. officials should resist efforts to water them down.
Among the helpful steps was the creation of a new panel of regulators, the Financial Stability Oversight Council, to watch for risks and coordinate responses, the report said.
Information sharing among agencies has improved, so-called stress tests of firms is helping deal with risk-management problems and new regulatory powers are in place to shut down firms on the brink of failure instead of bailing them out.
But some key vulnerabilities still have not been addressed, including overhauling the housing finance system and reducing the exposure of firms to money market mutual funds, the IMF said.
The long period of extremely low interest rates, led by Federal Reserve policy designed to promote growth, have pushed some firms to take risks in search of better investment returns, the report said.
Banking mergers
And a string of mergers in the banking sector, some pushed by regulators during the crisis, have created potential problems.
“Large and interconnected banks dominate the system even more than before,” the report said.
The IMF said it was imperative that the U.S. create “an independent national regulator” for the insurance industry, which now is largely overseen by state officials. The Financial Stability Oversight Council should be bolstered and agencies should finish crafting regulations for complex securities known as derivatives, the report said.