WASHINGTON — Until recently, the International Monetary Fund's main job was lending to countries with balance-of-payment problems. Today, however, emerging countries increasingly prefer to "self-insure" by accumulating reserves (and sharing them through regional pooling arrangements). As a result, the fund must change, reinforcing its supervisory role and its capacity to oversee members' compliance with their obligation to contribute to financial stability. So its failure to press the United States to redress the mortgage-market vulnerabilities that precipitated the current financial crisis indicates that much remains to be done.

Indeed, in its 2006 annual review of the U.S. economy, the IMF was extraordinarily benign in its assessment of the risks posed by the relaxation of lending standards in the U.S. mortgage market. It noted that "borrowers at risk of significant mortgage payment increases remained a small minority, concentrated mostly among higher-income households that were aware of the attendant risks," and concluded that "indications are that credit and risk allocation mechanisms in the U.S. housing market have remained relatively efficient." This, it added, "should provide comfort."

Likewise, the problem was not mentioned in one of the IMF's flagship publications, the Global Financial Stability Report (GFSR), in September 2006, just 10 months before the subprime mortgage crisis became apparent to all. In the IMF's view, "[m]ajor financial institutions in mature . . . markets [were] . . . healthy, having remained profitable and well capitalized," and "the financial sectors in many countries are in a strong position to cope with any cyclical challenges and further market corrections to come."