“Trade turmoil risks financial stability” - According to the IMF, tariffs and rising debt threaten banks
Global financial stability risks have increased significantly since the fall, driven mainly by heightened economic uncertainty around trade policy and other geopolitical factors, the International Monetary Fund warned.
In its semi-annual Global Financial Stability Report, the IMF warned that tightening financial conditions, coupled with heightened uncertainty, are increasing financial risks around the world.
The warning of higher risks comes as the Fund lowered growth forecasts for most countries, citing the impact of U.S. tariffs.
Specifically, the IMF noted three vulnerabilities that could affect financial stability going forward. First, valuations remain high in some equity and corporate debt markets despite recent sell-offs, leaving room for further declines. Second, some financial institutions, such as hedge funds, could face pressure in volatile markets and exacerbate any sell-offs.
And finally, more turmoil could affect sovereign debt markets, especially for countries with high debt levels.
The IMF's latest update on its assessment of financial risks comes in the wake of President Donald Trump's election and his efforts to impose sweeping tariffs on trading partners around the globe. The report comes as the IMF and World Bank begin their semi-annual meetings in Washington.
The International Monetary Fund warned that tariff turmoil could hit banks hard, as a trade shock could force them to increase reserves against potential losses. A slowdown in capital markets could reduce non-lending income or disrupt trade finance, which generates $18 trillion in profits for banks globally.
In response to these risks, the IMF reiterated its call for global regulators to ensure that banks have sufficient capital and liquidity, including by implementing the global Basel III accord on higher capital standards.
The fund called for “full, timely and consistent implementation” of these new capital standards. This comes as US regulators have abandoned previous efforts to impose these rules and will instead try to create a new standard with a new minimum capital burden on banks.
The IMF also called for "independent and intensive" supervision of banks, with an increased focus on how banks and non-banks interact, which do not face similar scrutiny.
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