IMF's Christine Lagarde attacks bonus culture

IMF chief called on G20 to push ahead with pay reforms 'because the behaviour of the financial sector has not changed fundamentally'

Christine Lagarde, managing director of the International Monetary Fund, has criticised the bonus culture of the financial world as she urged effective action to tackle too-big-to-fail banks.

Speaking at the Inclusive Capitalism conference in London, organised by Lynn Forester de Rothschild, she called for the G20 to push ahead with pay reforms “because the behaviour of the financial sector has not changed fundamentally in a number of dimensions since the financial crisis”.

Against the backdrop of several leading banks caught in scandals over the fixing of Libor rates, foreign-exchange rigging and money laundering, Lagarde said: “Although some changes in behaviour are taking place, these are not deep or broad enough. The industry still prizes short-term profit over long-term prudence, today’s bonus over tomorrow’s relationship.”

Fellow speaker Prince Charles also called for capitalism “to move away from the short term and focus on the long term”.

Lagarde attacked banks for resisting efforts to reform the financial system to allow the biggest financial institutions to fail safely.

“The bad news is that progress is still too slow, and the finish line is still too far off. 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.”

IMF figures show too-big-to-fail banks are still major sources of systemic risks, with implicit subsidies amounting to around $70 billion (£41.58 billion) in the US, and up to $300 billion in the eurozone.

“Clearly, ending too-big-to-fail must be a priority. That means tougher regulation and tighter supervision,” she added.