Around 5% of banks globally are vulnerable to stress if central bank interest rates remain higher for longer, despite the easing of turmoil in the sector in ...
WASHINGTON - Around 5% of banks globally are vulnerable to stress if central bank interest rates remain higher for longer, despite the easing of turmoil in the sector in recent months, the International Monetary Fund said on Tuesday.
The IMF adjusted this year's stress test to probe the impact of its baseline economic scenario of higher interest rates for longer, as well as the possibility of consumers yanking deposits. Its "severe-but-plausible" scenario envisages the global economy entering "stagflation." The report was issued as global financial leaders gathered in Marrakech, Morocco, for the IMF and World Bank annual meetings.The U.S. Federal Reserve's interest rate hikes in 2022 and 2023 led to heavy losses on the government bond portfolios held by regional U.S. banks, which in turn spooked depositors and led to a string of failures in March and early May of this year.
The report urged central banks to stick with higher rates until inflation cools, but warned that some investors appear to be too confident that inflation will fall quickly. "History cautions against declaring victory too soon and prematurely easing monetary policy," the report noted.
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