Liz Truss pension episode flags risk of further financial crises, says IMF
The near collapse of Britain’s pension funds during Liz Truss’s brief premiership highlights the risk that higher global interest rates will trigger more financial crises in the coming months, the International Monetary Fund (IMF) has warned.
In a report, the agency based in Washington DC said the rescues of Silicon Valley Bank and Credit Suisse may not have been isolated incidents and that there was a chance that problems could stretch beyond the traditional banking sector to pension funds, insurers and hedge funds.
The warning came in a chapter from the IMF’s half-yearly global financial stability report, released before its official publication next week, which stressed the need for regulation of non-banks to be tightened.
A blog by three IMF officials – Fabio Natalucci, Antonio Garcia Pascual and Thomas Piontek – accompanying the report said weaknesses had emerged after a period of more than a decade in which interest rates had been low and cheap money had been readily available.
“Recent strains at some banks in the US and Europe are a powerful reminder of pockets of elevated financial vulnerabilities built over years of low rates, compressed volatility and ample liquidity.
“Such risks could intensify in coming months amid the continued tightening of monetary policy globally, making it especially important to understand and safeguard this broad swath of the financial sector that comprises an array of institutions beyond banks.”
The IMF said the growth of non-bank financial intermediaries (NBFIs) had accelerated after the 2008 global financial crisis and that they now accounted for almost 50% of global financial assets. “As such, the smooth functioning of the non-bank sector is vital for financial stability.”
The report said
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