Christine Lagarde gets tough on Wall Street

She was equally firm when I ventured the complaint of some US banks that the contested Basel III regulations that set rules for banks around the world were anti-American and placed an unfair burden on US Companies. "You know, when I was sitting on the other side of the pond, I heard exactly the same story from the European banks, that it was anti-European and overly pro-American," Lagarde said. "So I'm sure there must be something right about it. I think the Basel committee is trying to do as good a job as it can and is trying to resist the pressure. I certainly hope that it continues doing so."

It is just a little more than four years since a financial crisis ripped apart the world economy, destroying millions of jobs and stunting millions of lives. Those wounds are still so fresh that you may be surprised to learn that banks, whose risky behavior caused the crash in the first place, would be putting up much of a fight at all against tighter rules. "It's human nature," Lagarde told me. "The moment the situation improves, you tend to forget about the hard times. And on this occasion, I think it is the job of policymakers, of supervisors, of regulators to constantly have that in the back of their mind and as an objective to avoid a relapse of what happened back in 2008."

The major current battle is about capital—how much banks should hold and how liquid it should be. Lagarde sees two other big fights in the offing. One is the regulation of so-called shadow banking, the vast world of financial transactions that are done outside open exchanges, hidden from public balance sheets or conducted by nonbank financial institutions. "Shadow banking is clearly developing at a steady pace," Lagarde warned in our interview, and "currently escapes a degree of regulation and supervision."

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