World is still vulnerable to another financial crisis, says Bank official
Warning: Minouche Shafik
The world is still vulnerable to another financial crisis seven years after the collapse of Lehman Brothers, according to a senior Bank of England official.
Minouche Shafik, who is deputy governor for markets and banking and the central bank, warned the mechanisms in place for dealing with sovereign debt crises are ‘more of a patchwork than a safety net’.
She said the need for ‘a stronger and more resilient global financial safety net’ has been highlighted by the challenges facing emerging markets including slower growth, falling commodity prices and potential spillovers from higher interest rates in the West.
Shafik, a former economist at the International Monetary Fund, warned that the flow of money between countries ‘can be fickle and flighty with destructive effects on the real economy’.
She called for better funding of the IMF and better mechanisms for dealing with debt restructuring.
She also said the IMF should carry out stress tests on countries’ finances – just as regulators such as the Bank of England do on banks.
The central bank’s financial policy committee is today expected to discuss the threat posed by the huge market for government and corporate bonds.
It is feared that rising interest rates could lead to a collapse in bond prices, hammering big funds and other investors who have piled into the market in recent years.
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