Wednesday, September 29, 2010

IMF to stress test 25 nations

THE world's 25 biggest financial systems, including Australia's, will be stress-tested by the International Monetary Fund every five years, in a key reform to try to head off another global financial crisis.

In a compromise announced on Monday, the US and other big economies finally agreed to a five-yearly exam after blocking the IMF's plan to conduct stress tests every three years.

The refusal of the Bush administration to allow the IMF to independently stress test the US financial system was a key reason why its collapse caused vast losses worldwide.

The Howard government, by contrast, invited the IMF to join the Australian Prudential Regulation Authority to stress test its banks in 2005-06. The financial system came through the financial crisis intact.

A spokesman for Treasurer Wayne Swan yesterday welcomed the deal, which could see the IMF back in Australia next year. "Our banks are well capitalised and well managed after years of strong supervision by our world-class regulators," he said.

APRA ran its own stress test on the banks last year. Chairman John Laker says that even with a 25 per cent fall in housing prices and a recession worse than 1990-91, all institutions would survive.

The IMF's stress testing to be conducted with the World Bank in developing countries will also test the regulators' own policy framework, and their capacity to manage and resolve a crisis.

An IMF report yesterday urged Britain to accelerate reform of its financial sector while praising the stringent spending cuts imposed by the new Cameron government. In its annual report on Britain, the IMF board said its economy was on the mend. And it said the benefits of bringing the deficit under control outweighed the costs.

The Asian Development Bank has lifted its growth estimate for developing Asia to 8.2 per cent this year, but forecasts it will slow to 7.3 per cent next year as stimulus measures are withdrawn.

Growth next year is forecast to be 9.1 per cent in China, 8.7 per cent in India, 6.3 per cent in Indonesia and between 4 and 5 per cent in South Korea, Taiwan, Hong Kong and Singapore.