Another Financial Crisis in 5 Years or Less
Another financial crisis is coming, and we’re still not prepared, warns Min Liao, Director-General of the China Banking Regulatory Commission. From the “Summit on the Global Agenda” in Abu Dhabi Liao was asked -.Shadow banking, regulation, disruptive financial technology – what are the greatest challenges facing the global financial system in 2015 onward?
Min Lao commented “Shadow banking – when institutions that are not banks carry out banking activities, in the shadows – is the greatest challenge. There are two reasons. First, intensified regulation on regulated financial institutions has shifted some riskier activities into the shadow banking sector. Under such circumstances, the overall risks increase as this risky business drops off the regulators’ radar. Second, new technology is amplifying the risks of shadow banking. China’s recent stock market turmoil testified to the risk-amplifying effect of shadow banking, which is armed with new technologies. The concern is the same in the US and Europe. The shadow banking sector, together with the cross-market activities it facilitates, has posed a great challenge for regulation and the global financial system as a whole.How likely is it that the world will face another global financial crisis in the next five years, and how prepared are we to withstand it? It is likely that the world will face another global financial crisis in the next five years. The reason lies in the fact that many of the problems behind the 2008 crisis remain unsolved. The fragility is still there, for instance in shadowing banking, high indebtedness, a lack of structural reform, the sustainability of emerging markets, and high leverage.The way central banks and governments initiated rescues and reform after the 2008 crisis brought about changes and recovery in some parts of the world, but the super low-rate environment also delayed important structural reform and sacrificed market discipline. It is likely that another crisis will happen, but it’s difficult to determine where it will explode.The real economy cannot recover to the pre-crisis level in the foreseeable future, and it remains uncertain whether the intensified regulation can control risks from shadow banking and disruptive technologies. Therefore, the next crisis will probably catch us unprepared once more”.
Courtesy of: Visual Capitalist