IMF Calls For Cross Border Supervision Of African Banks

IMF Calls For Cross Border Supervision Of African Banks

The International Monetary Fund (IMF) has called for increased collaboration amongst financial industry regulators in Africa so as to ensure and increase supervision of cross border financial institutions on the continent.

IMF Managing Director, Christine Largarde noted that supervisors in the financial industry particularly banks, need to be able to work across borders to develop practical resolution and recovery plans.

Speaking at Financial Stability and Pan-African Banking Conference on Cross-Border Banking and Regulatory Reforms in Mauritius yesterday, Largade said in order to avoid expensive taxpayer support to sustain banking systems “as we saw in the global financial crisis, it is essential to put in place robust frameworks for the resolution of cross-border institutions that give regulators the authority to close banks.”

The IMF chief while noting that the expansion of cross-border banking on the the continent has been impressive as 10 African banks now have a presence in at least 10 countries on the continent, and one is present in more than 30 countries, said the key is to ensure that supervision takes place on a consolidated basis.

According to her, this expansion has brought a host of new complexities, “with varying regulatory regimes across countries at different stages of financial sector development, it should not be surprising that effective oversight of cross-border banking presents immense challenges. Unified accounting and reporting standards are absent. Data weaknesses abound. National secrecy laws and constraints on information flows impair cooperation among supervisors in home and host countries.”

She noted that resolution frameworks and mechanisms are insufficient in any number of countries let alone on a regional basis. This takes on added significance in light of the recent sharp slowdown in African growth.

Largarde pointed out that bank supervisors are on the front lines in an era of rapid change in the banking industry as their work requires both sufficient resources and political support, adding that while it is always tempting to ease up on supervision when there are worries about economic growth and banks face pressure to expand credit “we ease up at our own peril.”

Citing the 2008 global financial crisis, she said supervisors failed to understand the risk profiles of cross-border institutions. “These entities built up complicated market positions, shifted business across borders, and became too large to manage.

“Regulation and supervision failed to keep pace. What this means for Africa is that prudential rules affecting capital and liquidity requirements need to match the risks found in a bank group. This requires sharing more information among supervisors. It also means that supervisors need the power and confidence to do their job properly, including by challenging bank management.”