IMF produces sharp words but vague measures

Keystone

Switzerland supports the five-point plan put forward by the G7 industrialised nations, aimed at shoring up the banking system.

Swiss Economics Minister Doris Leuthard and head of the Swiss National Bank Jean-Pierre Roth who were in Washington this weekend to attend a meeting of the policy-guiding body of the International Monetary Fund, both came out in favour of the plan.

The meeting of the International Monetary and Financial Committee precedes the annual meeting of the boards of governors of the IMF and the World Bank, which opens on Monday.

“We are determined that none of our major banks should find itself in a serious crisis which could lead it to bankruptcy, and the federal government will do everything to prevent that happening,” Leuthard said on Friday.

She also said that the cabinet should look at ways of protecting small savers. Parliament has proposed a higher ceiling for guarantees on bank deposits. At the moment this stands at only SFr30,000 ($26,300) in Switzerland, much lower than in many other countries.

“There was a convergence of views during the IMF crisis meeting, and it was clearly stated that no country allow a banking establishment to go under,” Roth told swissinfo after the meeting on Saturday.

But he refused to be drawn on the state of health of Switzerland’s two major banks, UBS and Credit Suisse.

On Friday the World Economic Forum published a ranking of the world’s best banking systems. It put Canada top of the list, followed by Sweden and Luxembourg. Switzerland came only 16th.

Roth played down the significance of the findings, saying that the study had compared apples and oranges. He pointed out nevertheless that Switzerland had come second for competitivity.

Future problems

Roth told swissinfo that the meeting looked mainly at short-term problems, and warned that once the current situation has been brought under control it will be necessary to think of the future.

“This crisis is terrible, but if we don’t want a repeat of the current situation tomorrow the banks must be in a position to absorb these shocks. The central aim must be for the banks to be better capitalised and less indebted,” he explained.

As to whether taxpayers should be expected to continue to come to the aid of private banks, Roth replied that “the market is there to recapitalise the banks”.

Roth was critical of the international financial institutions and of governments for their failure to foresee the crisis.

“Errors of judgement have been committed by all the states, in particular the US where a high-risk mortgage market was allowed to develop,” he said.

“At some time we will have to ask ourselves whether the instruments we have, particularly those of the IMF, are good enough for the challenges we may face.”

Leuthard told journalists after the crisis meeting that the situation was “very serious”.

Despite the general consensus that everything should be done to prevent banks collapsing and to ease the flow of money, Leuthard made clear her belief that the situation is different in each country, and solutions should be tailor-made for each.

Warnings

The IMF managing director, Dominique Strauss-Kahn, earlier warned that the global financial system had been “pushed to the brink of meltdown”.

After the meeting of the political committee he expressed his disappointment that neither it nor the G7 had announced specific measures, preferring to stick to generalities.

While the US called for patience to give time for the rescue plans announced by different countries to work, Strauss-Kahn stressed the need for urgency.

However, he described the action plan as the “first big success in coordination” and expressed optimism that it would improve the flow of credit between banks.

Meanwhile a summit of 15 euro zone countries was convened in Paris on Sunday to discuss further ways of calming the financial turmoil. It is expected to agree on a package of measures to ensure that the German banks have sufficient capital.

swissinfo, based on an article in French by Marie-Christine Bonzom in Washington

G7 Five Point Plan

At their meeting on October 10 the G7 nations agreed:

to use all the means at their disposal to prevent the collapse of important financial institutions

to ensure that there are firm guarantees for bank deposits

to see that the banks are in a position to acquire the necessary capital from private and public sources

to take steps to help unfreeze the credit and money markets

to ensure that the financial system has access to liquid funds

Switzerland at the IMF

Switzerland was represented at the IMF crisis meeting by Economics Minister Doris Leuthard and Swiss National Bank head Jean-Pierre Roth.

Switzerland’s finance minister, Hans-Rudolf Merz, was unable to go because he is recovering from a heart attack last month.

His deputy, Eveline Widmer-Schlumpf, announced on Friday that she would not attend the meeting, but follow the situation at home.

Leuthard had meetings on the sidelines of the IMF with the French finance minister Christine Lagarde, and the finance ministers of Poland and Serbia.