Christine Lagarde gets tough on Wall Street

Chrystia Freeland

Watch out Wall Street and look sharp, City of London—one of the sheriffs of global capitalism is riding into town. An elegant Frenchwoman with a shiny silver bob and the smooth manners of a veteran Cabinet minister and white-shoe lawyer, Christine Largarde, the managing director of the International Monetary Fund, doesn't conform to the most common stereotypes of a tough law enforcer. But, on the eve of the World Economic Forum—the chummy annual gathering of the world's business elites in Davos, Switzerland—Lagarde delivered a strong call for firmer financial regulation around the world.

Speaking at a news conference, Lagarde decried the "waning commitment" to tighter financial regulations and said that finishing the post-2008 effort to fix the world's banks should be one of the three economic priorities in 2013. In an interview afterward, Lagarde elaborated on the theme, warning that robust lobbying threatened to weaken the efforts by regulators and legislators to force banks to hold more and better capital against their loans and to be more transparent.

"I see a lot of pressure coming out of the industry," she said. A former corporate lawyer, Lagarde isn't naive about that muscular lobbying, or unsympathetic to its motivations. It is, she said, "clearly part of their jobs. They will naturally lobby to support more flexible, more accommodating regulations."

But because of the special role of finance in the economy—including the special support the state gives banks in times of trouble—the "sector warrants stronger regulation and stronger buffers against potential risks and regular tests of their capacity to resist shocks." "We believe," Lagarde said at her news conference, "that it is important for regulators, for supervisors, for authorities to resist aggressive industry pushback."

In our conversation, Lagarde was quick to rebuff some of the bankers' arguments against stronger financial regulation. When I asked her whether the weak world economy was a reason to delay tougher rules, she was uncompromising, repeating her point twice for emphasis: "It's always the wrong time here. It's always the wrong time."

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