Bankers press Brown to push through overhaul of IMF

The world's leading banks urged Gordon Brown today to use his powerful role at the International Monetary Fund to drive through reform at the fund this week in time to avert a financial crisis.

The Institute of International Finance, which represents hundreds of the world's largest financial institutions, said the growing risk of a major shock to the financial system made reform "crucial".

The warning came as the Chancellor, who chairs the international monetary and financial committee (IMFC), prepares to fly to Washington for the spring meetings of the IMF and World Bank. The meetings are set to be dominated by fears of growing global imbalances and an intense debate over the role of the IMF in a globalised world.

There have been calls for a shake-up in the voting system that would see Europe cede some of its representation to Asian economies to reflect the massive changes in the world economy.

In a letter to Mr Brown the IIF, which has 350 members in 60 countries that include HSBC and Citigroup, said growth in global liquidity had removed the IMF's importance as a lender of last resort. It said underlying risks to the economy from soaring oil prices, tensions of trade issues and record current-account imbalances made it vital the IMF takes on a bigger surveillance role.

Charles Dallara, the IIF's managing director, said: "There are economies that remain vulnerable to event risk, to a more challenging global environment or to populism. Lax policy reforms, the lack of transparency or incomplete reforms could exacerbate tighter marker conditions and contribute to sharp investor reactions unless policies are strengthened and the system reinforced." The IIF laid out a reform plan that included: shaking up the voting structure to "reflect the realities of the world economy" including a consolidation of the EU into one vote; putting the world economy at the heart of the IMF's role, centred around the G7 plus the tiger economies of China, India, Brazil and Russia; and complementing crisis-prevention tools with a short-term, swift response liquidity facility. These changes "would reinforce the fund's core role as the guardian of the global financial system", it told Mr Brown.

On Monday Rodrigo de Rato, the IMF's managing director, urged members to consider increasing the share of the vote held by countries under-represented relative to their size and by smaller nation states. Mervyn King, the Governor of the Bank of England, said this year the IMF must embark on urgent reform to restore its legitimacy in a changing global economy.