This article was last updated on April 12, 2023
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Risk of new banking crisis as per IMF
According to a semi-annual report by the International Monetary Fund (IMF), although intervention by Silicon Valley Bank and Credit Suisse prevented a global banking crisis, there is still a 15 percent chance of a new crisis occurring.
The IMF warns that investors are searching for weak spots in the financial system, as was the case with Credit Suisse. If there is a crisis of confidence, banks will become more cautious about lending, consumers will tighten their purse strings, and companies will postpone investments, leading to slower economic growth. The IMF calls on governments and central bankers to remain vigilant, as inflation is not expected to be under control until at least 2025.
The IMF advises that high interest rates should be maintained to combat inflation, while measures should also be taken if financial stability is at risk. The recent issue with the Silicon Valley Bank serves as a reminder of how quickly rising interest rates can create new vulnerabilities in the financial system.
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