Sustainability Community

Good morning community!

Saw a very interesting article in the FT today on the overlooked threats to the global financial system.

Brief overview:

The Financial Times article explores the persistent risks and instability in the global financial system despite extensive regulatory efforts following the 2007-08 financial crisis. The collapse of Silicon Valley Bank in 2023, due to basic risk management failures, and the forced sale of Credit Suisse to UBS, highlighted significant deficiencies in risk management and governance. Additionally, the $26 trillion US Treasury market has experienced repeated turbulence, exacerbated by reduced market-making capabilities of big banks due to regulatory changes. This environment is further destabilized by the growth of private markets and a shadow banking system, which now holds a larger share of global financial assets than traditional banks.

The article also discusses the shift in the global financial landscape from public equity to private markets, driven by factors such as global savings imbalances, changes in corporate savings behaviour, and the rise of large technology companies hoarding cash. This shift has led to increased debt dependency for economic growth, particularly in advanced economies, with significant implications for financial stability. The rise in public and corporate debt, alongside higher interest rates, poses challenges for debt sustainability and financial stability, necessitating ongoing central bank interventions to manage systemic risks and maintain market confidence.

For further details, you can read the full article here.