The general manager of the Bank for International Settlements (BIS), AgustÃn Carstens, stated on Monday that elevated public debt and structural changes in the global financial system could complicate how central banks respond to future financial crises. His remarks accompanied the release of the institution’s Annual Economic Report, which detailed emerging risks to the world’s financial stability.
In a speech presenting the report, Carstens contrasted the current economic environment with the one preceding the 2008 global financial crisis. He noted that before 2008, government balance sheets were comparatively stronger, allowing for significant fiscal stimulus to support economies. Today, according to the BIS report, public debt levels are substantially higher across many countries, reducing the capacity for similar government spending during a future downturn.
The report also highlighted the ongoing challenge for central banks in bringing inflation back to target levels, describing the final stage of this process as the “last mile.” This persistent inflation complicates monetary policy decisions, as central banks must balance price stability with financial stability.
A key focus of the annual report was the evolution of the financial system. Carstens pointed to the expanded role of non-bank financial intermediaries (NBFIs), which include entities like investment funds, insurance companies, and pension funds. These institutions now manage a larger share of global financial assets than they did in the past.
According to the BIS, the growth of NBFIs introduces different dynamics into the financial system. The report noted that while central banks have developed new tools since 2008, such as large-scale asset purchase programs, their deployment could be more complex in the current high-inflation, high-debt environment.
Carstens also addressed the topic of central bank independence, stating that it remains a cornerstone of monetary and financial stability. He added that difficult policy trade-offs in a future crisis could expose central banks to increased political pressure.
The BIS report concluded by recommending that governments prioritize fiscal consolidation to rebuild financial buffers. It also called for the implementation of stronger macroprudential policies aimed at managing risks within the non-bank financial sector to bolster the resilience of the global financial system.
