Bank of England governor Andrew Bailey has issued a warning about the vulnerability of the global financial system to shocks, following a recent surge in share prices and other assets. As chairman of the Financial Stability Board (FSB), the fiscal risk watchdog for the G20 group of nations, Mr Bailey called for increased multilateral co-operation between countries to bolster global financial systems.
In a letter addressed to G20 ministers, he highlighted that rising debt levels and a lack of full implementation of agreed financial reforms could lead to heightened vulnerability. Mr Bailey warned of a potential “disorderly adjustment”, which could result in asset prices plummeting from their recent highs.
He stated: “While most jurisdictions have seen a rebound in financial markets in recent months, valuations could now be at odds with the uncertain outlook, leaving markets susceptible to a disorderly adjustment.”
This comes after Wall Street stocks experienced their fastest drop in six months, following a strong period of growth.
JP Morgan boss Jamie Dimon is among those who have cautioned that there is a significant risk of a slump in stock valuations within the next six months to two years.
Ahead of the upcoming International Monetary Fund (IMF) meeting and global outlook release, Mr Bailey emphasised that reforms by the FSB are crucial to maintaining financial stability.
He stated: “The reforms put in place by the FSB and other standard-setting bodies since 2009 have helped contain the fallout from more recent crises, including the Covid-19 pandemic, Russia‘s illegal full-scale invasion of Ukraine and the swift resolution of the 2023 banking turmoil.
“The need for such global standards and co-operation is as clear today as it was 15 years ago – not just to prevent crises but because, ultimately, a resilient system allows for the efficient allocation of capital and supports G20 member economies in boosting growth.”