The IMF wants stricter supervision of lenders outside the banking sector
Financial regulators should pay more attention to lenders outside the banking sector, such as pension funds, insurance companies and investment funds. With that caveat comes the International Monetary Fund (IMF), which notes that these non-banking lenders grew rapidly after the 2008 financial crisis and account for nearly half of all financial investments. Thus, problems in these institutions could endanger overall financial stability.
Since these financial institutions are often not subject to the same stringent rules as banks, they may be exposed to more risks. The IMF believes that tighter supervision should prevent this. Supervisors should also receive more money and staff for this.
“Policy makers need to close or narrow the gap in key data reporting obligations, including the risks to companies in their borrowing or use of derivatives,” wrote the Global Guardian of Financial Stability.
Risks to the financial sector are now increasing with interest rates rising sharply. In recent years, borrowing money in Western economies has been incredibly cheap, so it has been tempting to build up high debt loads.
Rapidly increasing interest rates also played a role in the bankruptcy of the Silicon Valley bank in the United States. This bank had invested in bonds, which had become much less valuable due to higher interest rates. But the IMF also points to the panic that developed among British pension funds when British government bonds plunged last autumn in the wake of poorly received budget plans.
Earlier this week, the European Central Bank (ECB) warned of the risks posed to financial stability by companies outside the banking sector. In particular, this concerned investors in commercial real estate, such as shopping centers or office buildings. According to the European Central Bank, investors have invested 1 trillion euros in commercial real estate over the past 10 years, which has fallen in value due to rising interest rates. Due to its scale, problems in the real estate sector can also spread to other sectors.
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