Following the International Monetary Fund (IMF), the Institute of International Finance (IIF) also issued a warning on the 4th about the Federal Reserve (FED) raising interest rates and shrinking market liquidity, believing that a strong collision between the two could lead to catastrophic consequences. Investors It may be quite a painful adjustment process.
IIF is composed of the world's major commercial banks, investment banks and mutual funds, and its members include Deutsche Bank, JPMorgan Chase, etc. British media Telegraph reported that IIF CEO Timothy Adams pointed out that liquidity is currently the most concerning issue for global central banks.
The so-called liquidity refers to the difficulty of realizing assets. Adams said that after the 2008 financial tsunami, financial regulations became stricter, but they may also weaken the ability of financial institutions to provide liquidity when a crisis occurs. Investment banks used to be the main providers of market liquidity, but due to regulations, investment banking business has tended to shrink. Data show that since 2007, corporate bond inventories of U.S. investment banks have fallen by 75%, and their European peers have also fallen by 50%.
In addition, the FED, which has not raised interest rates in nearly ten years, is preparing to tighten monetary policy this year, which may also have an impact on the market. Adams believes that no matter how transparent the FED policy is and how clear its intentions are, it cannot completely avoid the debt crisis in some emerging market countries.
According to statistics from the Bank for International Settlements (BIS), since the financial tsunami, the balance of US dollar-denominated bonds issued outside the United States has expanded from US$6 trillion to US$9 trillion, of which emerging market countries accounted for US$2.6 trillion. It has grown in the past ten years. Nearly twice as much. The higher the debt, the more sensitive it is to interest rate fluctuations. This is the main reason why the IIF is worried that some emerging market countries with poor health may not be able to withstand the impact of interest rate increases.
(This article is reprinted with permission from MoneyDJ News)
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