On October 12, Tobias Adrian, director of the monetary and capital markets department of the IMF, presented the fund’s latest global financial stability report.
The tone was grim.
Poor liquidity even in supposedly high-quality asset markets was leading to sudden, sharp losses, Adrian told his audience, adding: “There is a risk of disorderly tightening in financial conditions that may interact with pre-existing vulnerabilities.”
Those vulnerabilities have been building up for decades – an excess of debt, weak economic growth, spill-over effects between seemingly disconnected markets and the exposure of the world’s banking system to a growing and weakly regulated non-bank financial sector where liquidity mismatches abound and high leverage is hidden.
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