BusinessCorporate FinanceIMF blames $1trillion credit crisis on lax financial rigour

IMF blames $1trillion credit crisis on lax financial rigour

The IMF report pins the blame for world’s $1tn economic turmoil on failure to keep up

An International Monetary Fund report, warning the widening global turmoil
from the credit crisis could cost $1trillion, concluded there was a ‘collective
failure to appreciate the extent of the leverage taken on by a wide range of
institutions and the associated risks of a disorderly unwinding’.

The report pinned the blame on reckless banks and their bosses, careless
investors, lax regulators, rating agencies which lacked rigour and
insufficiently austere central banks, according to The Times.

‘Private sector risk management, disclosure, financial sector supervision and
regulation all lagged behind the rapid innovation and shifts in business models,
leaving scope for excessive risk-taking, weak underwriting, and asset price
inflation,’ the IMF report found.

Banks overestimated the extent to which, by offloading loans through both
‘off-balance sheet vehicles’, unpoliced by regulators, and by selling them on
through securitisation, they could then also offload their risks.

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story in The Times

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