# Banking stability worries go behind closed doors at IMF-World Bank meetings
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-04-17
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: IMF-World Bank Meeting: Shift in Focus towards Inflation
Meta Description: Get insights on the recent IMF-World Bank meetings concerning banking stability and global economic challenges. Stay informed and prepared for potential risks
URL: https://financedigest.com/banking-stability-worries-go-behind-closed-doors-at-imf-world-bank-meetingshtml

![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-04-17t101022z1lynxmpej3g09lrtroptp4imf-worldbank-financial-stability-1736814136890-compressed.jpg)

# Banking stability worries go behind closed doors at IMF-World Bank meetings

By David Lawder and Andrea Shalal

WASHINGTON (Reuters) – Just a month after the biggest banking crisis in more than a decade, the world’s top economic and financial policymakers gathered in Washington and said surprisingly little about financial system stability – at least publicly.

With financial markets calmed by strong policy actions to stem the outflow of bank deposits, the International Monetary Fund and World Bank spring meetings were instead dominated by calls to keep up the fight against inflation, accelerate debt restructuring for poor countries and avoid geopolitical fragmentation of the global economy.

Some [officials conveyed a sense that banking](https://www.financedigest.com/bank-of-england-officials-split-over-future-path-for-rates.html "Bank of England officials split over future path for rates") system safety was further down the priority list of global economic problems.

One has managed to contain this crisis from spreading, so indeed there was not really so much focus during the IMF-World [Bank meetings on this particular issue,” said European](https://www.financedigest.com/dollar-outshines-euro-sterling-amid-european-bank-jitters.html "Dollar outshines euro, sterling amid European bank jitters") Commission Executive Vice President Valdis Dombrovskis.

But it’s still something where we need to [stay vigilant and address potential risks](https://www.financedigest.com/staying-ahead-of-risk-this-black-friday.html "Staying Ahead of Risk This Black Friday") which may emerge in our financial system,” Dombrovskis told reporters. He added that the [European Union’s banking](https://www.financedigest.com/european-central-bank-to-raise-deposit-rate-to-3-25-by-mid-year-reuters-poll.html "European Central Bank to raise deposit rate to 3.25% by mid-year: Reuters poll") system was stable, well capitalized with ample liquidity.

World Bank President [David Malpass and the IMF’s Middle East director](https://www.financedigest.com/david-murray-joins-veraviews-as-demand-director.html "David Murray joins VeraViews as Demand Director") Jihad Azour both suggested their concerns about banking system strains were mostly in the context of potentially reducing the availability of credit for emerging markets at a time when rising interest rates already were causing capital outflows.

As [banking systems come](https://www.financedigest.com/central-banks-hike-rates-again-but-a-pause-is-coming.html "Central banks hike rates again, but a pause is coming") under strain … there needs to be redoubled efforts to have capital flow to [working](https://www.financedigest.com/the-evolving-world-of-trade-finance-optimize-working-capital-with-distributed-ledgers.html "The Evolving World Of Trade Finance: Optimize Working Capital With Distributed Ledgers") capital,” Malpass told reporters on Thursday.

But other meeting participants said that behind closed doors there were more pointed questions about the potential for similar shocks like the failure of Silicon Valley Bank and the forced sale of global lender [Credit Suisse](https://www.financedigest.com/mitsubishi-ufj-to-postpone-at1-bond-issuance-in-credit-suisse-fallout.html "Mitsubishi UFJ to postpone AT1 bond issuance in Credit Suisse fallout").

## INFLATION PRIORITY

The IMF opened the week by warning that a major new flare-up of banking system turmoil could slam global growth back to 1% this year, but urged priority for taming persistent [inflation that has helped build interest rate stress on banks](https://www.financedigest.com/boes-bailey-says-rate-setters-can-put-inflation-before-bank-worries.html "BoE’s Bailey says rate-setters can put inflation before bank worries"), including failed U.S. lenders [Silicon Valley Bank and Signature](https://www.financedigest.com/exclusive-u-s-regulator-seeks-sale-of-silicon-valley-bank-signature-bank-portfolios-sources.html "Exclusive-U.S. regulator seeks sale of Silicon Valley Bank, Signature Bank portfolios-sources") Bank.

IMF [Managing Director Kristalina Georgieva emphasized the need to overcome sticky inflation and low growth that threatens](https://www.financedigest.com/analysis-credit-suisse-collapse-threatens-switzerlands-wealth-management-crown.html "Analysis-Credit Suisse collapse threatens Switzerland’s wealth management crown") to last for years, warning that efforts to secure supply chains and rising geopolitical tensions could lead to a new Cold War, slowing growth further.

The steering committees of the IMF and the World [Bank warned in general terms of the need](https://www.financedigest.com/britains-digital-banks-need-support-amid-banking-turmoil-trade-body.html "Britain’s digital banks need support amid banking turmoil – trade body") for vigilance and encouraged regulators to step up supervision.

Policymakers have taken swift actions to strengthen confidence in the banking system, which remains sound and resilient, supported by the reforms implemented after the 2008-09 [global financial crisis,”](https://www.financedigest.com/global-food-makers-retailers-remain-in-crisis-mode.html "Global food makers, retailers remain in crisis mode") the International Monetary and Financial Committee (IMFC) said in a chair’s statement.

But during the IMFC’s closed meeting, the possible spillovers from [financial stability risks](https://www.financedigest.com/financial-risks-of-climate-change-overplayed-senior-hsbc-banker-says.html "Financial risks of climate change overplayed, senior HSBC banker says") were a main topic, Ukrainian Finance Minister Serhiy Marchenko told Reuters.

He said IMFC members discussed three groups of countries: those with strong supervision and good tools to control inflation, those facing more risks to contain inflation, and those facing potential crisis emanating from inflation, [recessions or bank](https://www.financedigest.com/banking-turmoil-means-recession-fears-are-creeping-back.html "Banking turmoil means recession fears are creeping back") runs.

I think all the ministers of finance, all the [central bankers](https://www.financedigest.com/inflation-fighting-central-bankers-air-climate-role-doubts.html "Inflation fighting central bankers air climate role doubts") are trying to be on one page,” Marchenko told Reuters in an interview. “What is necessary is that all policymakers should agree on specific measures they should take.”

A European Central Bank policymaker said the meetings made him more pessimistic about the financial stability outlook because the speed of rate [hikes](https://www.financedigest.com/big-ecb-hike-adds-fuel-to-the-banking-sector-fire.html "Big ECB hike adds fuel to the banking sector fire") had sewn financial risk into banks’ asset bases, creating the potential for more SVB-like shocks.

My sense is that some felt there were major risks with respect to credit contraction, commercial real estate, further potential for gravitation of deposits, underwater long-term bonds, and [economic slowing that could trigger further financial sector](https://www.financedigest.com/combatting-economic-uncertainty-in-2023-with-the-payments-sector-2.html "Combatting economic uncertainty in 2023 with the payments sector") ructions,” said Mark Sobel, a former IMF and U.S. Treasury [official who attended the meetings](https://www.financedigest.com/opec-meeting-to-take-into-account-market-conditions-iraqi-official.html "OPEC+ meeting to take into account market conditions – Iraqi official").

They also fretted about vulnerabilities in the non-bank [financial sector,”](https://www.financedigest.com/how-can-the-financial-sector-safely-use-the-iot.html "How can the financial sector safely use the IoT?") said Sobel, who is U.S. chairman of the Official Monetary and [Financial Institutions](https://www.financedigest.com/what-the-future-holds-for-financial-institutions-in-2023.html "What the Future Holds For Financial Institutions in 2023") Forum think tank.

U.S. Treasury Secretary Janet Yellen said she was working to address [financial system vulnerabilities](https://www.financedigest.com/how-the-financial-services-industry-can-solve-the-issue-of-vulnerable-code.html "How the financial services industry can solve the issue of vulnerable code") and economic risks, but cautioned against too much negativism in the outlook.

A senior U.S. Treasury official said that Yellen’s discussions with counterparts broadly acknowledged that the [financial system had weathered recent stresses but the search for pockets of leverage and risk needed](https://www.financedigest.com/cfos-need-a-focus-on-forex-in-financial-planning-tools-accountagility-reveals.html "CFOs need a focus on forex in financial planning tools, Accountagility reveals") to continue.

Without being complacent, people are saying it seems like the system is working in a way it was intended, as the reforms were [put in place following the global](https://www.financedigest.com/toyotas-july-global-vehicle-output-drops-again-puts-annual-target-in-doubt.html "Toyota’s July global vehicle output drops again, puts annual target in doubt") financial crisis,” the official said. And so I think that was kind of the [internal message and I’d say](https://www.financedigest.com/credit-squeeze-biggest-threat-to-economic-outlook-fidelity-international-says.html "Credit squeeze ‘biggest threat’ to economic outlook, Fidelity International says") that was the external message.

(Reporting by David Lawder and Andrea Shalal; additional reporting by Balazs Koranyi; Editing by Andrea Ricci)


---
This blog is powered by Superblog. Visit https://superblog.ai to know more.
---