Concerns about banking stability are discussed behind closed doors at IMF-World Bank meetings

WASHINGTON, April 17 (Reuters) – Just a month after the worst banking crisis in more than a decade, world economic and financial leaders gathered in Washington and spoke surprisingly little about the stability of the financial system – at least publicly.

After calming financial markets with strong policies to curb bank deposit outflows, the spring meetings of the International Monetary Fund and World Bank were instead dominated by calls to continue the fight against inflation, accelerate poor-country debt restructuring and end geopolitical fragmentation USA avoid global economy.

Some officials gave the impression that the safety of the banking system was lower on the priority list of global economic problems.

“They managed to contain the spread of this crisis, so the IMF-World Bank meetings really didn’t put that much emphasis on this particular issue,” said European Commission Executive Vice-President Valdis Dombrovskis.

“But it’s still something we need to remain vigilant about and address potential risks that may arise in our financial system,” Dombrovskis told reporters. He added that the European Union’s banking system is stable, well capitalized and with ample liquidity.

World Bank President David Malpass and IMF Middle East Director Jihad Azour both said their concern about the strains on the banking system was mainly related to a potential tightening of credit availability for emerging markets at a time when rising interest rates were already causing capital outflows.

“As banking systems come under pressure… efforts must be redoubled to get capital flowing into working capital,” Malpass told reporters Thursday.

However, other session participants said there were more pointed questions behind closed doors about the potential for similar shocks such as the collapse of Silicon Valley Bank and the forced sale of global lender Credit Suisse.

INFLATION PRIORITY

The IMF opened the week by warning that a renewed flare-up in banking system turmoil could push global growth back to 1% this year, but called for a containment on persistent inflation, which has helped put interest-rate pressures on banks, including failed US lenders , increase Silicon Valley Bank and signature bank.

IMF Managing Director Kristalina Georgieva stressed the need to overcome persistent inflation and low growth that could persist for years, warning that efforts to secure supply chains and rising geopolitical tensions are fueling a new Cold War and growth could slow further.

The IMF and World Bank steering committees generally warned of vigilance and encouraged regulators to step up oversight.

“Policymakers have taken swift action to boost confidence in the banking system, which remains sound and resilient, helped by reforms implemented in the aftermath of the 2008-09 global financial crisis,” the International Monetary and Financial Committee (IMFC) said in a statement Statement from a Chair.

But during the IMFC retreat, the potential impact of financial stability risks was a major theme, Ukraine’s Finance Minister Serhiy Marchenko told Reuters.

He said IMFC members discussed three groups of countries: countries with strong oversight and good tools to control inflation, countries facing greater risks to curb inflation, and countries facing potential crises caused by inflation , recessions or bank storms.

“I think all finance ministers, all central bankers try to stand on one side,” Marchenko said in an interview with Reuters. “It is necessary that all political decision-makers agree on concrete measures that they should take.”

A European Central Bank policymaker said the meetings had made him more pessimistic about the outlook for financial stability as the pace of rate hikes sewed financial risks into banks’ asset bases and created the potential for more SVB-like shocks.

“In my opinion, some felt that there were major risks related to the credit crunch, commercial real estate, further potential for deposit attraction, long-dated borrowing underwater and an economic slowdown that could trigger more financial sector crises,” Mark Sobel said. a former IMF and US Treasury Department official who attended the meetings.

“They also worried about vulnerabilities in the non-bank financial sector,” said Sobel, who chairs the US think tank Official Monetary and Financial Institutions Forum.

US Treasury Secretary Janet Yellen said she is working to address financial system vulnerabilities and economic risks, but cautioned against too much negativity in the outlook.

A senior US Treasury Department official said Yellen’s talks with her colleagues generally acknowledged that the financial system has weathered recent stresses but the search for leverage and risk must continue.

“Without being complacent, people say that the system appears to be working as intended since the reforms were introduced after the global financial crisis,” the official said. “I think that was kind of an internal message and I would say that was the external message.”

Reporting by David Lawder and Andrea Shalal; additional reporting by Balazs Koranyi; Editing by Andrea Ricci

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