The International Monetary Fund has called for the US to defend and strengthen its Dodd-Frank financial reforms, adding fuel to the intense debate over how to balance stability and growth on Wall Street.
In its first comprehensive assessment of the American financial system in five years, the IMF said the US needed to toughen regulation to ward off a repeat of the last financial crisis.
The intervention comes as Republicans in Congress seek to water down Dodd-Frank because they say it stifles prosperity, while Democrats accuse the GOP of wanting to grant reckless favours to Wall Street.
The IMF said: “Before the memory of the crisis begins to fade, it will be important to complete the reform agenda and resist attempts to overturn previously agreed measures.
“It is, therefore, critical that rulemaking under the Dodd-Frank act should be completed and implementation of several other agreed measures should begin.”
The fund said the resilience of the financial system had improved in the five years since the passage of Dodd-Frank, but it said reform remained a “work in progress” and highlighted areas where more needed to be done.
Specifically, it said the US should strengthen its monitoring of systemic risks; enhance its supervision of non-bank institutions dubbed “shadow banks” and of asset managers; and create a national insurance regulator.
Although the IMF seeks to remain apolitical, its intervention comes as Senate Republicans led by Richard Shelby have made a priority of revising Dodd-Frank to remove what they say are unnecessary burdens.
Their efforts have sparked fierce opposition from the Obama administration and Senator Elizabeth Warren, a liberal firebrand who says the GOP is threatening to create the conditions for another crisis.
Aditya Narain, the IMF official who led the US assessment, steered away from politics on a call with reporters, saying the fund’s recommendations took into account the best international practices and did not make specific reference to events in Congress.
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“If there is a need to review provisions of the Dodd-Frank act, there should be a comprehensive review, a systemic review, which should take into account all situations and be more of a technical review than a political exercise,” he said.
The IMF called for greater powers to be given to an umbrella group of regulators called the Financial Stability Oversight Council, which is responsible for monitoring systemic risks but is unpopular on Wall Street.
A proposal to revise Dodd-Frank from Senate Republicans included changes to FSOC that Democrats said were designed to tie the regulators in knots.
The IMF assessment also contained unwelcome views for asset managers, which are trying to fend off the threat of being regulated as institutions that pose systemic risks.
The fund said: “The supervision of asset managers needs to be enhanced, including explicit requirements on risk management and internal control and a structured effort to stress test the industry.”