Reserve Bank of India: Global financial system under serious threat

Reserve Bank of India has alerted of another financial crisis brewing, as global liquidity becomes a concern amidst central banks pegging their lending rates at near zero levels, leaving scope for another asset bubble to take down the global financial system. 

Executive director of RBI VK Sharma while addressing in Singapore said “There is, thus, incontrovertible evidence that there is yet again a huge under-pricing of risks in the financial system and, therefore, it is not a question of if, but when, the generic asset bubble caused by manifold increases in balance sheets of central banks will burst,”

He also added “One of the major worries this time around, which did not exist back then, is global liquidity. Alongside, non-financial corporations in the US are reportedly sitting on cash and liquid assets worth $2 trillion which they do not know what to do with it. In this background of huge deluge of global liquidity, there are unmistakable signs of asset bubble inflating again in almost a replay of the last global financial crisis. In India, we have had remarkable financial stability, not fortuitously, but thanks to pre-emptively and pro-actively delivered prudential measures like increase in risk weights for exposures to commercial real estate, capital market, venture capital funds and systemically important non-deposit accepting NBFCs”

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