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Lagarde: Banks Keen On Regulation To Address Mkt Turmoil

Apr.13, 2008 in Market Outlook

WASHINGTON (Dow Jones)–Banks are keen on regulation to address the consequences
of the financial market turmoil, but they want some form of it extended to hedge
funds, Christine Lagarde, the French finance minister, said.

“Banks have a thirst for regulation,” the French finance minister told reporters
Saturday at a briefing on the sidelines of the International Monetary Fund spring
meetings in Washington.

Lagarde was commenting on the outreach dinner that took place Friday night after
the Group of Seven leading industrial nations’ meeting of of finance officials.
The dinner hosted 10 top executives from U.S., European and Japanese financial
companies in order to discuss implications of the current credit crisis and
market turbulence for the banking sector.

Banks attending the G7 outreach dinner included U.S. investment banks such as
Lehman Brothers Holdings (LEH) and Morgan Stanley (MS), as well as U.S. and
European commercial and investment banks such as Citigroup Inc. (C), Deutsche
Bank AG (DB), Barclays Plc (BCS) and Credit Suisse Group (CS).

Lagarde said bank officials attending the dinner had a “very positive reaction”
to the Financial Stability Forum’s recommendations backed by the G7 and
“suggested that some of these proposals be extended to hedge funds,” without
being more specific.

Hedge funds are privately managed, lightly regulated investment vehicles.

The FSF report, endorsed Friday by the G7, includes both short- and medium-term
recommendations for financial institutions to increase transparency and
strengthen risk management, oversight of capital and liquidity requirements.

Lagarde’s comments are something of a contrast with this week’s report from the
Institute of International Finance, a group of financial-services firms.

On Wednesday, the IIF issued a report which was something of a mea culpa,
acknowledging responsibility for the financial crisis but saying there was little
need for new regulation.

IIF Chairman Josef Ackermann said the banks should take the lead role in solving
“the problems that have arisen” and preventing “those problems from recurring in
future.”

In an address Saturday to the International Monetary and Financial Committee, the
IMF’s steering panel, Lagarde said: “The call for regulation will have to
continue resonating even after the crisis is over. Reaching a balance between
greed and guilt calls for global supervision and for the agreement of all private
and public actors to the principles of transparency and risk management.”

The French minister said that banks are in the process of assessing their
responsibility for the credit crisis, which caused major U.S. and European banks
to incur billions of dollars in subprime losses.

“The bankers themselves have brought up the question of responsibility by
speaking themselves of greed. There is a clear self-examination process going on
at banks, especially at investment banks,” Lagarde told reporters.

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