The leading body for global financial stability has warned that emerging risks to the global economy including a global economic downturn and Brexit has to be addressed by the global authorities gathering in Washington this week.
While much has been achieved during the past decade, its job was “far from complete”, said the Financial Stability Board that was formed following the 2008 banking crisis which had hit the entire global economy and which took years to recover. The body also issued a warning that a number of new dangers to the global economy need the attention of the global leaders including threats of higher levels of corporate debt, weaker lending standards, and cyber-attacks.
Institutions and firms have been forced into a false sense of security because of a long period of growth and rising asset prices, said FSB chairman Randal Quarles in an open letter to G20 finance ministers and central bank governors.
“The outlook for global growth has started to weaken and become more uncertain. Declining long-term interest rates have supported risky asset prices. Corporate and public debt levels continue to rise. And financial markets now expect very low, or even negative, interest rates to persist for the foreseeable future. These increasing risks meet a financial system that is much more resilient than it was before the financial crisis. However, the long period of sustained global growth and rising asset prices may have weakened the incentives to take precautions against unforeseen events,” he said.
The global leaders also should be ready to tackle the issue of Brexit and treat is as one of the risks to the global economy, the FSB boss said.
“We need to be ready to address evolving risks to global financial stability, be they related to current downside risks to growth and uncertainties around Brexit, or structural changes in the financial system, such as the growing role of non-bank financial intermediation,” Quarles said.
A host of global leaders will gather in Washington for the annual meetings of the International Monetary Fund and the World Bank. Their own meeting will also be held between the finance ministers and central bank bosses of the G20 countries.
The former head of the FSB and the Bank of England governor, Mark Carney, is slated to attend the meetings together with head of the Bank of Japan boss, Haruhiko Kuroda, the World Bank president, David Malpass, Goldman Sachs’s chief executive, David Solomon, and the newly appointed IMF managing director, Kristalina Georgieva.
The possible threats and risks to the global economy because of technological advances in the global financial industry such as the entry into the industry of third parties and big tech firms that provide some critical services such as cloud storage was also mentioned in the letter. The letter cited the example of Amazon whose technological advancements has made it a major player in banking sector and its web services division is gaining clients all across the entire financial services industry.
(Adapted from TheGuardian.com)