09 Oct 2014
The International Monetary Fund (IMF) has warned that years of low interest rates could cause a repeat financial crisis.
IMF Financial Counsellor José Viñals said: ‘Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges. Banks are safer but may not be strong enough to vigorously support the recovery’.
The most recent global financial stability report released by the IMF has analysed 300 large banks in advanced economies. Worldwide findings show that banks representing up to 40% of total assets lacked the finances and power to provide adequate credit to support economic recovery. The figure is 70% for banks in Europe.
The report said: ‘Risks are shifting to the shadow banking system in the form of rising market and liquidity risks. If left unaddressed, these risks could compromise global financial stability. Accommodative policies aimed at supporting the recovery and promoting economic risk taking have facilitated greater financial risk taking’.