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IMF warns of ongoing financial risks after banking crisis

The International Monetary Fund (IMF) said on Tuesday (April 4) that the recent banking crisis in the United States and Europe could spread to key non-banks such as pension funds, complicating the fight against high inflation by central banks.

The IMF economists wrote in a blog post that banking risks “could increase in the coming months as monetary policy continues to tighten globally” and spill over into the non-banking sector. linked banks, which now hold nearly half of all global financial assets.

It was published alongside a chapter in the IMF’s bimonthly report on global financial stability.

Central banks on both sides of the Atlantic were on the right track as they tried to tackle high inflation by raising interest rates without adding to the turmoil in the banking sector caused by the collapse seriousness of Silicon Valley Bank.

California’s high-tech lender collapsed after taking on excessive interest rate risk, which left it overexposed when the US central bank began a massive rate hike campaign in 2016. last.

Non-banking financial intermediaries (NBFIs) such as pension funds and investment funds have grown significantly since the 2008 global financial crisis, when regulators moved to tighten regulations for with the bank.

NBFIs have strong ties to traditional banks and could “become an important channel of financial stress amplification,” the IMF said.

The sheer size of the NBFI sector means that “the smooth functioning of the non-banking sector is crucial to financial stability,” the IMF economists wrote.

To properly tackle the problem, the IMF said policymakers must use a variety of tools, including enacting stricter supervision and regulation of the sector, and forcing companies to share more data about the risks they are facing.

Central banks also have a role to play, which should focus on targeted, temporary support to NBFIs that pose a risk to financial stability and to those deemed systemically important.

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