KENMARE CONFERENCE:IRELAND IS getting to grips with its banking crisis, but "very, very high" rates of unemployment mean it is too soon to "pop the champagne", International Monetary Fund official Ajai Chopra told delegates at the annual Kenmare conference this weekend.
Speaking at the Dublin Economic Workshop event in Kenmare, Co Kerry, on Saturday evening, Mr Chopra advocated an EU-wide deposit insurance scheme and more co-ordinated regulation of European banks as a means to resolve financial instability in Europe.
Mr Chopra, who is the head of the IMF team overseeing Ireland’s EU-IMF bailout, said there had been a perceived lack of coherence among EU leaders in addressing the euro zone debt crisis.
In a keynote address, he summarised the IMF’s advice to Europe on how it should reform its financial system to address the root causes of the crisis.
Although he did not address Irish issues during the speech, he did say during a subsequent question and answer session that the country has shown considerable political and social cohesion in addressing its difficulties. He also said he believed the Irish banking crisis was now on the way to being resolved and that the economy had stopped contracting.
On the status of the EU-IMF bailout following the coming to power of the Fine Gael-Labour administration, he said that “it didn’t change much. It changed at the margins.”
While acknowledging that European leaders had stepped up their response to the growing crisis, Mr Chopra said that the steps proposed so far do not go far enough.
The IMF advocated a four-pillar approach to addressing the underlying financial instabilities in Europe, he said.
The first pillar is an EU-wide deposit insurance scheme which would prevent runs on banks. The current approach in the EU to convince those who deposit cash in banks that their money is safe is to provide national guarantees.
Collective efforts thus far have been to harmonise the deposit guarantee scheme, but the IMF believes one EU-wide common fund is needed, Mr Chopra said.
The second pillar is a common bank resolution framework which would ensure that the costs of a bank failure in one country would not fall entirely on that country. It would also involve mechanisms to ensure that senior bank creditors take losses in the event of an institution failing.
The third pillar of the IMF’s proposed financial system reforms in the euro zone is a single, pan-European bank regulator.
Mr Chopra said on Saturday that the EU’s college of national regulators does not get around the problem of national regulators being excessively lenient towards national banks.
The final pillar of reform should be a wider and more powerful set of regulatory requirements and tools that would make the financial system more stable. This included making banks increase their capital buffers beyond the levels set down in new EU legislation currently being enacted. (Additional reporting: Reuters)
