As reported by Reuters, the International Monetary Fund (IMF) is warning that still-rising trade tensions are becoming an increasingly worrying risk to global financial stability, and a continued deterioration in trade relations could see a rapid run-up in funding costs or expose risk markets to significant downside.
Key highlights(via Reuters)
New bank resolution regimes meant to avoid future bailouts are largely untested, the Fund said in its biannual global financial stability update. “Near-term risks to global financial stability have increased somewhat,” the IMF said. “Overall, market participants appear complacent about the risk of a sharp tightening in financial conditions.”
The United States continues to grow strongly and the Federal Reserve raised interest rates for the seventh time in the last eight quarters at its latest policy meeting in September. U.S. stock markets are also at record highs. That contrasts with a slowing in the euro area and Japan. China’s economy is also showing signs of moderating and that could be exacerbated by its trade disputes with the United States.
New IMF research shows emerging market countries excluding China could face debt portfolio outflows of up to $100 billion, a level last seen during the global financial crisis. The Fund cited a number of other near-term risks to financial stability including the possibility of a “no-deal” Brexit or renewed fiscal policy concerns in some highly indebted euro area countries.
It also urged global regulators to keep in place measures taken since the financial crisis and both heighten supervision of market liquidity and raise the amount of capital banks have to set aside to cushion any downturn. “The financial regulatory reform agenda should be completed, and a rollback of reforms should be avoided,” the Fund said. “To adequately address potential systemic risks, financial regulation and supervision should be used more proactively.”
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