In its twice-yearly global financial stability report released this week, the IMF warned that the increasing connections between non-bank financial institutions and banks are making the latter more vulnerable to contagion from market shocks.
Global financial markets “appear calm”, the IMF said, but there are several signs that the financial system has a number of vulnerabilities that could escalate if not addressed quickly by policymakers. Rising asset prices, the increasing fiscal deficits and subsequent reliance on sovereign bond markets and the growth of NBFIs all contribute to this heightened risk.