IMF reports on market turmoil

Report blames crisis on deficiencies in risk management, among others

WASHINGTON, DC – The International Monetary Fund (IMF) has released its report on the causes of the present market troubles. It draws a number of conclusions and lessons for future IMF surveillance.

Deficiencies in risk management, flawed methodologies on the part of credit rating agencies, and weaknesses in valuation disclosure and accounting were all singled out as areas of industry inadequacy.

For state institutions there were failures of equal magnitude. Central banks’ liquidity frameworks were singled out as an area for improvement. The crisis has highlighted the need to address illiquidity by broadening available collateral and counterparties, and using cross-border finance to draw from untapped liquidity pools.

For supervisors, there has been a failure to manage risks related to new and complex financial instruments, compounded by failures in consolidated supervision and underwriting standards. Recommendations include the review of capital requirements and other buffers to off-balance-sheet exposures and improvements to crisis management frameworks.