The sub-prime crisis is not over, the head of the OECD Angel Gurria said on Wednesday, describing it as a "collective bankruptcy" and damning failures throughout the chain of financial risk and regulation.
Gurria was particularly critical of supervision of the financial sector, telling the French newspaper Liberation that the rules "were not sufficiently respected or were not strict enough."
He said: "The entire institutional chain, well oiled, all this sophistication, yesterday the pride of the authorities, has been put into question by this collective bankruptcy."
In this respect, he pointed his finger at "the banks, the investment funds, intermediaries, the credit rating agencies, the insurers."
The Organisation for Economic Co-operation and Development works on behalf of 30 industrialised nations to study conditions in many areas of economic management and to advise on best practice.
On Tuesday the International Monetary Fund estimated that what it termed the collective failure surrounding the US sub-prime home-loan crisis would cost the international financial system $945 billion (Dh3.468 trillion).
Gurria observed: "Each week, a bank reveals the extent of its exposure to the 'sub-prime' or new waves of corrections (to figures). And when one cycle has finished, another follows – with staggering writedowns."
He said: "The billions of dollars in losses are hallucinating. And it is not finished!"
A wind of reform initiated on March 31 by US Treasury Secretary Henry Paulson showed that "there should have been better oversight of the system", Gurria said.
Proposals by Paulson to tighten regulation of the financial sector would charge the US Federal Reserve central bank with removing overlapping aspects of a system which has its roots in the 1930s, and with correcting shortcomings.
But Gurria said that failings in the regulations were not the only cause of the crisis. There had also been failings in supervision. "In some respects, application of the regulations would have been enough," he said.
"But existing rules were not respected or were not strict enough." (AFP)
OECD warns that sub-prime crisis is not over