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A bigger IIF?

Charles Dallara, the departing managing director of the IIF, has transformed the organization into an effective global pressure group. It needs a successor who can maintain its relevance.

Whether or not the role of managing director of the Institute of International Finance is a poisoned chalice or a much-coveted opportunity for global banking enthusiasts, the leadership of the Washington-based trade body will soon be up for grabs in a challenging period for financial diplomacy.

Under the leadership of outgoing chief Charles Dallara, the IIF has profoundly expanded since its modest roots as a grouping of predominantly US commercial banks that negotiated Latin American debt restructurings in the early 1980s. Today, it is a global trade association for 461 diverse financial firms, half of which are headquartered in emerging markets.

From the IIF’s perspective, Dallara’s successor will be charged with an historic mission: navigating the eurozone sovereign debt crisis, striking a judicious balance between debt sustainability and voluntary private-sector participation, and repelling draconian regulations that would change the face of financial globalization.

Over nearly three decades, the institute, through its lobbying on regulatory and sovereign debt affairs, research and industry co-ordination, has coveted a seat at the high table of international financial diplomacy. But this position ultimately emanated from developed markets: last year’s €100 billion debt reduction for Greece, the largest sovereign debt restructuring deal in history, in which Dallara successfully led the international creditor consortium.

The deal catapulted the institute into the heart of western Europe’s sovereign debt crisis and buttressed its hitherto self-anointed role as an intermediary between the official sector and private financiers. As the risk of further write-downs on Greek debt grows, Dallara’s successor could be tasked once again with uniting diverse private-sector investors in a more-distressed climate.

The incoming managing director requires humility, official-sector experience, banking expertise and credibility. That shows how tough an act Dallara will be to follow.

A global banking advocate and coalition-builder is likely to emerge from individuals in the second tier of the official sector, such as John C Dugan, comptroller of the currency at the US Treasury between 2005 and 2010, and a former lawyer and bank lobbyist. Other plausible candidates include David H McCormick or Timothy D Adams who, like Dallara, have both served under a Bush administration in their capacity as under secretary for international affairs at the US Treasury.

Emerging market enthusiasts would argue that, amid fears about regulatory moves to balkanize the global banking industry, the new IIF chief should hail from a developing economy, reflecting the broad geographical interests of the institute’s membership while boosting its moral authority.

But these benefits need to be balanced by a new political reality: a leadership vacuum in global banking. In short, there are a vanishing number of senior international banking executives with the guts and personalities to defend the size and structure of their multi-product, multinational business models in the public domain. For proponents of financial laissez-faire, therefore, the new managing director should live and breathe global finance.

In any case, the new managing director will need to soften the impression that the IIF is nothing more than a mouthpiece for seemingly reckless and avaricious bankers at a time when the trust between financiers and the policy community has hit another low.