Christine Lagarde, managing director of the International Monetary Fund. (Photographer: Andrew Harrer/Bloomberg)

Lagarde Says World Finance Not Safe Enough 10 Years After Lehman

(Bloomberg) -- A decade after the global crisis with financial systems “safer but not safe enough,” the regulatory pendulum has begun to swing back toward looser oversight, International Monetary Fund Managing Director Christine Lagarde warned.

In a blog post on Wednesday, Lagarde offered a short-list of concerns over lingering vulnerabilities in the global financial system. She said too many banks, especially in Europe, remain weak and require more capital, while the increased size and complexity of institutions means “too-big-to-fail” remains a problem.

“Perhaps most worryingly of all, policy makers are facing substantial pressure from industry to roll back post-crisis regulations,” she wrote.

Sept. 15 will mark the 10th anniversary of the collapse of investment bank Lehman Brothers Holdings Inc., which paralyzed global credit markets and helped trigger a downturn in economic activity known as the Great Recession. Lagarde was France’s finance minister from 2007 to 2011 before leaving to be the IMF chief.

In her blog post, Lagarde noted that most economists failed to predict the crisis, missing warning signs that today seem obvious, including “frenzied” risk-taking by banks, lower lending standards and an over-reliance on short-term funding.

The coordinated international response to the crisis was, however, more impressive, she said. It’s ironic, then, deep scars from those events have made international coordination more difficult.

“The fallout from the crisis -- the heavy economic costs borne by ordinary people combined with the anger at seeing banks bailed out and bankers enjoying impunity, at a time when real wages continued to stagnate -- is among the key factors in explaining the backlash against globalization, particularly in advanced economies, and the erosion of trust in government and other institutions,” Lagarde wrote.

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