Financial Crisis Seen as a Distant Threat at IMF Meeting
Banking leaders and policymakers gathered for the International Monetary Fund’s spring meetings downplayed the prospect of a looming financial crisis, despite warnings that the US-led trade war threatens global market stability.
The chaotic trade war, triggered by a flurry of tariffs announced and then sometimes scaled back by President Donald Trump’s administration, has prompted escalated volatility across equity, currency and US Treasury markets. Global growth forecasts have been cut, and some, including Bundesbank President Joachim Nagel, fear a coming recession.
Experts including analysts at Scope Ratings have warned that the turmoil could trigger the next financial crisis. Bankers, regulators and lobbyists gathered this week in Washington, DC, for the IMF’s spring meetings largely disagreed.
“The uncertainty we’re having is very high but this may not be unique,” Standard Chartered Chairman Jose Vinals told Bloomberg Television, noting that the world had been through “complicated moments” before, including the Covid-19 pandemic.
While the “unpredictability” of the tariffs’ trajectory is “unsettling,” which could hurt individual economies should businesses and consumers postpone financial decisions, there have so far been few “significant financial consequences” beyond swings in stock and Treasury markets, Vinals said.
In the US, the 20 largest banks went into the tumult having added more than $170 billion of capital in the past three years, Bloomberg News reported earlier this week. European banks have also bolstered their capital levels significantly, figures from the European Central Bank show.
There are several key differences between current financial conditions and those that preceded previous crises, said Tobias Adrian, director of the IMF’s monetary and capital markets department and co-author of this week’s financial stability review.
Those include the absence of “market dysfunction or institutional failures” as well as the fact that the growth slowdown isn’t expected to be dramatic, Adrian said. He also pointed out that the recent drop in values for some asset classes came from a very high base, so the decline could be considered a “normalization.”
