IMF warns bank failures highlight 'dangerous' financial stability risks

By farahat

April 11, 2023

0

59 views

SBNY

-2.%

Add to/Remove from Watchlist

Point value:

Author Hannah Lang

(Reuters) – The International Monetary Fund warned of a “dangerous mix of vulnerabilities” in financial markets on Tuesday, saying participants’ failure to adequately prepare for rate hikes had major risks to the health of the financial system. Uncertainty.

In addition, the global bank said that since 52-52 The financial crisis four weeks ago exposed the sector responsible for a significant proportion of consumer and business credit in the world’s largest economy weakness.

In its latest Global Financial Stability Report, the IMF said that in the six months since its last assessment, global financial stability Risks increased “rapidly”, when it had already touted risks as “clearly skewed” to the downside.

Now, following the sudden collapse of Silicon Valley Bank last month 500500 Signature Bank (OTC: 500 NYSE ) in the US, and loss of confidence in Credit Suisse forcing regulators to plot UBS takeover, international “Market sentiment remains fragile and stresses in many institutions and markets remain evident,” the IMF said.

” Even if you think the average As far as banks are concerned, banks have a lot of capital and liquidity, and these weak institutions can emerge and then feed back into the system as a whole,” Tobias Adrian, director of the IMF’s Monetary and Capital Markets Department, said in a statement. said in an interview.

This report, along with an updated WEO that flags many of the same risks, comes about a year after the Fed began its most aggressive policy moves After posting four decades of rising interest rates, other central banks have pulled in a synchronized global tightening to bring inflation down. The IMF said the bank failures “have been a powerful reminder” of the challenges posed by tight monetary policy – and its The resulting tighter financial conditions – and the build-up of vulnerabilities since the global financial crisis more than a decade ago.

“obvious in hindsight”

Even before the recent banking turmoil, Maturity mismatches and financial leverage have crept under the surface. Reports point to temporary purchases by the Bank of England to stabilize the domestic bond market and South Korean authorities restarting an asset purchase program to address stress in the asset-backed commercial paper market last fall. signs.

“While the risks are obvious in hindsight, the systemic impact of existing weaknesses is largely the responsibility of policymakers and investors Neither was anticipated,” the report said.

While a forceful response from policy makers has eased market anxiety, the IMF said whether recent events were “more systemic” “a harbinger of stress” remains to be seen, noting that accounting rules or regulatory treatments could obscure exposures or losses.

Problems at U.S. regional banks increased last year as rapidly rising interest rates cut into some banks’ holdings of long-term assets such as home loans and government assets) value bonds.

Last month, when SVB’s stock plummeted and savers surprised the market on March 8 with plans to raise funds to fill nearly $2 billion Potential problems erupted when the dollar funds fled later when the securities were sold through loopholes. Regulators shut down the bank just two days later, and Signature two days later.

Going forward, regional banks may face greater scrutiny over their shareholding and funding structures, the IMF warned.

“With regional and small banks in the U.S. accounting for more than one-third of total bank lending, cuts to credit supply could have negative impacts on growth and Financial stability has significant implications,” the report said.

Consolidate “Trust” All deposits at SVB and Signature Bank, even those above the FDIC limit, stabilize deposit outflows from smaller banks.

Even so, authorities should prepare for financial instability, including strengthening the bank resolution regime, the IMF advised.

report, “The international community needs to take stock of these experiences and draw policy conclusions about the effectiveness of resolution reforms in the wake of the global financial crisis.”

Adrian added that the IMF would be watching “very closely” whether “central banks have the tools to ensure that the system maintains trust.”

While households and businesses have built up buffers during the pandemic to boost their ability to absorb shocks, as interest rates rise, the IMF said, Those buffers have deteriorated, making them “more vulnerable to default risk.”

Falling revenues and tighter bank funding conditions could put big companies at risk of downgrade , especially large companies in emerging markets, the report said.

Elsewhere, the IMF emphasizes Several other sources of potential macroeconomic risk were identified, including a robust reopening of China and an escalation of Russia’s war in Ukraine, which could exacerbate stubbornly high inflation.

“It is true that these weaker tails in households, businesses and countries may have an overall impact at some point,” Adrian said . “We don’t see that happening at the moment, but there is definitely a risk of that as monetary policy continues to tighten.” 200

IMF warns bank failures highlight 'dangerous' financial stability risks

PwC Australia could lose government audit contract, Treasury chief says

BOJ chief says will be patient with ultra-loose policy

India files bribery case against BAE Systems, Rolls-Royce

LEAVE A REPLY Cancel reply

USA Trends

Messi-mad Indian mom driving to Qatar to see hero in his final World Cup

Drew Brees fakes lightning strike in promotional stunt for online sportsbook

Who could be speaker, if not Kevin McCarthy

3 bold Utah football predictions for Pac-12 Championship vs. USC

LAST NEWS

Austrian actor and 'Tony Erdmann' star Peter Simonischeck dies at 76

Celtics miraculously force Derrick White buzzer-beater into Game 7

Infinix Note 30 review

Pepecoin Eyes Rebound As It Finds Support In Strong Algorithm Data Score

Featured NEWS

'Thai Cave Rescue': First Trailer for Netflix Docudrama Captures Local Perspective

Feben Spring/Summer 2023 Ready-to-Wear

7cric Casino

Can the Los Angeles Lakers overcome their all-time poor shooting?

EDITOR PICKS

Austrian actor and 'Tony Erdmann' star Peter Simonischeck dies at 76

Celtics miraculously force Derrick White buzzer-beater into Game 7

Infinix Note 30 review

POPULAR POSTS

Austrian actor and 'Tony Erdmann' star Peter Simonischeck dies at 76

Celtics miraculously force Derrick White buzzer-beater into Game 7

Infinix Note 30 review

POPULAR CATEGORY

ABOUT US

FOLLOW US