The Bank for International Settlements (BIS) has issued a warning regarding the potential dangers facing the global financial system. The BIS highlights the reliance on extraordinary monetary and fiscal measures implemented in response to recent economic challenges.

Key Concerns

• Over-reliance on stimulus: The BIS expressed concern that continued dependence on government and central bank support could create new problems.
• Asset bubbles: Artificially low interest rates and excessive liquidity could inflate asset prices, leading to unsustainable bubbles.
• Moral hazard: Government intervention might encourage excessive risk-taking by financial institutions, creating a moral hazard.

Recommendations

The BIS urges policymakers to:

• Gradually withdraw stimulus: Begin to normalize monetary policy and reduce fiscal spending as the economy recovers.
• Strengthen financial regulation: Implement stricter rules to prevent excessive risk-taking and improve the resilience of the financial system.
• Promote sustainable growth: Focus on policies that foster long-term economic growth and reduce reliance on debt.

The BIS emphasizes that addressing these vulnerabilities is crucial for ensuring the long-term stability and health of the global financial system.