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Global Financial Risks Have Risen Amid Bank Turmoil, IMF Chief Warns


Global Financial Risks Have Risen Amid Bank Turmoil, IMF Chief Warns

Authored by Katabella Roberts via The Epoch Times (emphasis ours),

The recent collapse of Silicon Valley Bank (SVB) and the rescue of Credit Suisse by rival UBS show that risks to global financial stability have increased, International Monetary Fund (IMF) chief Kristalina Georgieva said at a conference in Beijing on March 26.

IMF Managing Director Kristalina Georgieva participates in a town hall discussion with civil society organizations at IMF headquarters in Washington on Oct. 10, 2022. (Drew Angerer/Getty Images)

Speaking at the 2023 China Development Forum in the capital, Georgieva warned that rapid interest rate hikes by the Federal Reserve combined with increased debt levels have placed extra stress on the economy, and risks to financial stability have risen.

“At a time of higher debt levels, the rapid transition from a prolonged period of low-interest rates to much higher rates—necessary to fight inflation—inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies,” Georgieva said.

The IMF chief also delivered a bleak outlook for 2023, forecasting another “challenging year” for the global economy, with global growth slowing to below 3.0 percent owing to Russia’s ongoing invasion of Ukraine, further monetary tightening, and “scarring” from the COVID-19 pandemic weighing down on economic activity.

Uncertainties are exceptionally high, including because of risks of geo-economic fragmentation which could mean a world split into rival economic blocs—a ‘dangerous division’ that would leave everyone poorer and less secure. Together, these factors mean that the outlook for the global economy over the medium term is likely to remain weak,” Georgieva said.

Even with a better outlook for 2024, global growth will remain well below its historic average of 3.8 percent and down from 3.2 percent in 2022, according to Georgieva.

Contagion Fears

So—we continue to monitor developments closely and are assessing potential implications for the global economic outlook and global financial stability. We are paying close attention to the most vulnerable countries, in particular low-income countries with high levels of debt,” Georgieva added.

The IMF chief’s comments follow weeks of turmoil in the banking sector in the wake of the collapse of SVB and U.S. regional lender Signature Bank, which sparked market panic and fears of a broader contagion.

This was exacerbated when banking giant Credit Suisse—which is among 30 financial institutions known as globally systemically important banks—was acquired by rival UBS in a $3.23 billion deal brokered by the Swiss government.

That deal, meant to prevent a collapse of the troubled bank as well as broader market chaos, appeared initially to help calm investor and client nerves. However, those fears resurfaced on Friday, sending bank shares tumbling amid a widespread stock sell-off.

Read more here…

Tyler Durden
Mon, 03/27/2023 – 17:02

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