G-7 promises to complete bulk of crisis reforms this year

A week after IMF managing director Christine Lagarde said progress on G-20 reforms was "still too slow", the G-7 has said it will complete most of the work in 2014

Leaders of the Group of Seven (G-7) countries today pledged to finish the bulk of their outstanding post-crisis financial reforms this year. Christine Lagarde, managing director of the International Monetary Fund (IMF), told a conference last week that progress towards those goals has been "too slow".

In a declaration published following a two-day meeting in Brussels, the group said: "We agreed that 2014 will be the year in which we focus on substantially completing key aspects of the core financial reforms that we undertook in response to the global financial crisis: building resilient financial institutions; ending too-big-to-fail; addressing shadow banking risks; and making derivatives markets safer."

The G-7 consists of finance ministers and central bank governors from Canada, France, Germany, Italy, Japan, the UK, the US, as well as the president of the Council of the European Union and the president of the European Commission.

In 2009, the broader G-20 agreed a number of reforms, including the adoption of central clearing and electronic trading for standardised over-the-counter derivatives, setting a deadline of the end of 2012. In the US, mandatory clearing came into effect in March 2013 for some market participants, with two further phases completing the roll-out, while its first deadline for electronic trading arrived in February 2014. Europe is still some way behind, with mandatory clearing expected at the end of this year at the earliest. The G-20 also agreed a number of prudential reforms for the banking industry, elements of which are still being debated.

The IMF's Lagarde blamed these missed deadlines on the complexity of the reforms, but said lobbying had also played a part.

2014 will be the year in which we focus on substantially completing key aspects of the core financial reforms that we undertook in response to the global financial crisis

"Progress is still too slow, and the finish line is still too far off," she said, speaking at the Conference on Inclusive Capitalism in London on May 27. "Some of this arises from the sheer complexity of the task at hand. Yet, we must acknowledge that it also stems from fierce industry pushback, and from the fatigue that is bound to set in at this point in a long race."

In particular, Lagarde pointed to the problem of too-big-to-fail banks – one of the items on the G-7's to-do list. In October 2013, Paul Tucker, then-deputy governor of the Bank of England, became one of the first big-name policy-makers to say the problem had been solved for systemically important banks in the US. He has since been joined by other regulators and senior bankers. Europe's Bank Recovery and Resolution Directive was only adopted by the European Parliament in April.

According to research from Credit Suisse, the funding subsidy that existed for large banks after the crisis, allowing them to raise debt more cheaply than smaller banks, has been eroded, implying that they are no longer deemed too-big-to-fail. But Lagarde is not so sure.

"A big gap is that the too-big-to-fail problem has not yet been solved. A recent study by IMF staff shows that these banks are still major sources of systemic risk. Their implicit subsidy is still going strongly – amounting to about $70 billion in the US, and up to $300 billion in the euro area. So clearly, ending too-big-to-fail must be a priority. That means tougher regulation and tighter supervision," she said.