On Tuesday, the International Monetary Institution (IMF) urged global regulators to provide stricter stress tests and deeper scrutiny of banks, in an effort to reduce the sector's vulnerability. The call comes as banks are dealing with falling loan demand and rising funding costs, despite successfully controlling the high interest rate environment.
In its Global Financial Sustainability Report 2023, the IMF emphasized the systemic risks arising from weak banks. The report cited the collapse of several lenders such as Silicon Valley Bank in the United States and Credit Suisse Group AG in Europe in March 2023. It should be noted that Credit Suisse Group AG, an important global bank (G-SIB), was taken over with the support of Swiss power.
The IMF's recommendations include improving risk assessment, conducting more frequent inspections, and creating a framework in crisis management. The institution also advised regulators to make stress tests more stringent and increase capital standards for interest rate risk.
In response to this proposal, US officials are considering changes to the Federal Reserve's annual stress test and a significant increase in capital requirements for Wall Street's largest banks. This proposal has met with opposition from the industry.
The IMF also encourages central banks to continue fighting inflation until there is clear evidence of sustainable movement towards those targets. This proposal underscores the IMF's commitment to maintaining global financial stability in turbulent economic conditions.
