WASHINGTON, Oct. 16 (Xinhua) -- The International Monetary Fund (IMF) on Wednesday warned of the buildup of financial vulnerabilities in corporate and non-bank financial sectors in several large economies amid loose monetary policies around the globe.
"Over the past six months, the twists and turns of trade disputes have continued to buffet financial markets, business sentiment has weakened further, and concerns about downside risks to the global economy have increased," the IMF said in its Global Financial Stability Report (GFSR).
"The shift toward a more dovish monetary policy stance across the globe, which has been accompanied by a pronounced decline of longer-tern yields, helped mitigate such concerns," it said.
"While easier financial conditions have supported economic growth and helped contain downside risks to the outlook in the near term, they have also encouraged more financial risk-taking and a further buildup of financial vulnerabilities, putting medium-term growth at risk," it added.
Specifically, the IMF listed three key vulnerabilities in the global financial system, including rising corporate debt burdens, increasing holdings of riskier and more illiquid assets by institutional investors as well as greater reliance on external borrowing by emerging and frontier market economies.
Even as overall resilience of the banking sector had been improved due to stricter regulation and supervision since the global financial crisis, the IMF warned negative yields and flatter yield curves as well as the spillovers of insufficient U.S. dollar liquidity among banks outside the United States could put more pressure on financial stability.
"Policymakers should lean against the buildup of vulnerabilities by deploying and developing macro-prudential tools as warranted and by maintaining stringent financial supervision," the IMF urged in the report.
The IMF added that greater multilateral cooperation is needed to ensure that there is no rollback of regulatory standards.
"Policymakers need to take urgent action to mitigate financial stability risks," said Tobias Adrian, director of the Monetary and Capital Markets Department at the IMF, at a GFSR press briefing.
He said that measures like new macroprudential tools, stricter supervisory and disclosures, prudent sovereign debt-management practices and frameworks could ease the concerns over risks.
"With financial conditions still easy - and with vulnerabilities building - policymakers should act now to reduce the vulnerabilities that could exacerbate the next economic downturn," said Adrian.
