Key insights
- FSB chair warns G20 of a potential "double or triple whammy" to financial stability if tighter funding conditions trigger multiple vulnerabilities. Stretched asset valuations, non-bank leverage, and private credit stress are key concerns. A significant repricing of equity prices due to a larger-than-expected impact on global growth could trigger turmoil. While banks are currently resilient, the warning suggests increased downside risk for US equities.
WASHINGTON, April 9 (Reuters) - The global financial system has so far absorbed the economic shock caused by the Iran war, partly thanks to post-2008 crisis reforms, but rising funding costs may exacerbate growing stress in other parts of the system, the chair of the Financial Stability Board warned the G20 on Monday.
Andrew Bailey, the governor of the Bank of England and chair of the FSB, an international financial watchdog, warned of a potential “double or triple whammy” if tighter funding conditions cause multiple vulnerabilities to crystalize at the same time - including stretched asset valuations, non-bank leverage, and private credit stress.
More details from the letter:
*Bailey was writing to G20 Finance Ministers and Central Bank Governors ahead of the International Monetary Fund meeting of global policy leaders in Washington this week.
*Bailey warned that a trigger for financial turmoil could be financial markets moving to price a much larger impact on global economic growth.
*In that scenario, abrupt re-pricing in equity prices could coincide with the already greater focus on valuations in private assets, he wrote.
*Despite the uncertainty, banks have remained resilient, reflecting the strength of post-global financial crisis reforms and underscoring the importance of implementing the Basel III capital rules.