The International Monetary Fund has warned that risks to the global financial system have increased over the past six months, and yet more pressure could come if global trade relations do not improve.
The IMF is also watchful on pressures in emerging markets, Reuters reports.
Ahead of its meetings with the World Bank in Bali this week, the IMF notes that persistent debt levels and “stretched” asset valuations are adding to global risks, even though the banking system itself is more secure 10 years on from the global financial crisis thanks to the activity of regulators.
The organisation notes that because non-financial debt levels have now passed 250 per cent of GDP, and underwriting standards look less secure outside of banking, this could dictate how severe the impact of any shock is.
The IMF report says: “Near-term risks to global financial stability have increased somewhat…Overall, market participants appear complacent about the risk of a sharp tightening in financial conditions.”
If inflation runs above expectations, interest rates could spike, or a shock could come from a final Brexit deal that is “disorderly”, it notes.
The IMF report reads: “The financial regulatory reform agenda should be completed, and a rollback of reforms should be avoided…To adequately address potential systemic risks, financial regulation and supervision should be used more proactively.”