Analysis: IMF split exposes risk of new global financial crisis | Markets

The inability to agree on stricter or looser oversight could be the seed of the next global financial crisis, with potential spillovers into emerging markets such as Brazil.

Two main topics dominated discussions in Washington, D.C.: stablecoins— digital coins pegged to strong fiat currencies or safe assets like government bonds to maintain value stability—and non-bank financial institutions, primarily investment fund managers.

European countries, along with the United Kingdom and Canada, generally favor tighter regulation of both sectors. The United States, in contrast, advocates for greater freedom in these sectors.

Brazil aligns with those calling for broader regulation and increased supervision to prevent future crises. One of the key goals of the Central Bank’s autonomy project is to ensure the monetary authority has the tools to intervene in these areas and maintain financial stability.

Without proper oversight, both stablecoins and non-bank financial entities could trigger large-scale financial turmoil.

In the case of stablecoins, while they offer potential efficiency gains through technologies like blockchain and decentralized settlement, they essentially represent private money issuance. If poorly designed, they could either replace national currencies or cause liquidity crises, similar to those that occurred in 19th-century America.

Non-bank institutions are also a source of concern due to their rapid growth and their increasing role in credit provision. Recent events, such as the UK’s “mini-budget” crisis during Liz Truss’s short-lived government, forced central banks to step in and provide liquidity.

Brazil’s Central Bank Chair Gabriel Galípolo recently remarked that if monetary authorities are expected to rescue failing institutions, they should also be allowed to prescribe preventive measures, “a healthier diet and lifestyle,” as he put it.

The U.S. stance reflects the economic philosophy of the Donald Trump administration, which leans toward deregulation and strongly supports cryptocurrencies.

At the IMF meetings, two distinct narratives emerged regarding the expansion of non-bank financial institutions. The European view is that markets are exploiting regulatory loopholes beyond supervisory reach. The U.S. perspective is that stricter post-2008 regulations on banks pushed the financial system to seek alternatives—hence the rise of these new entities.

In other words, the U.S. proposal is to loosen regulations for banks, not tighten them for non-banks. Europe, on the other hand, wants regulatory parity between both sectors.

This divergence is problematic because global markets are highly interconnected, requiring regulatory coordination—usually via the Financial Stability Board (FSB)—to prevent regulatory arbitrage.

When countries pursue different approaches, they often compete to offer the most relaxed rules in order to attract larger shares of international capital markets.

From Brazil’s perspective, this global disconnect does not preclude the country from making sensible regulatory decisions. Brazil’s relatively closed financial system and its traditionally tighter regulations helped shield it from the fallout of the 2008 crisis.