The current environment of swiftly rising interest rates, combined with tighter financial conditions, greater market volatility and slowing global growth “could test many of the long-standing and growing vulnerabilities in the global financial system,” the Financial Stability Board said today in its annual report on global financial stability.
Among other things, the report flagged elevated levels of debt in the non-financial sector, which it said could ultimately “adversely impact bank asset quality and lead to significant credit losses.” The report added that “while banks have more capital now than at the time of the [2008 global financial crisis] and stress tests suggest that banking sectors would be able to withstand significant shocks, a large decline in bank capital ratios could make them less willing to lend and provide financing for economic activity.”
The FSB said it will continue to prioritize the strengthening of nonbank financial intermediation (its term for “shadow banking”); enhancing central counterparty resilience; recovery and resolvability; responding to the challenges of technological innovation, including those related to cryptoassets and cyber resilience; enhancing cross-border payments; and addressing climate-related financial risk.