The world’s finance ministers and heads of central banks are increasingly concerned about the possibility of a new financial crisis.
As the financial elite prepare to gather in Washington for the fall meeting of the International Monetary Fund (IMF) this week, they will be confronted with a series of warning signals pointing to a new tremor in the markets.
Extremely lax monetary policies in the euro zone and Japan, and the resulting very low interest rates around the world, are enticing investors and banks to embark on a “search for yield” once again. This is in turn leading to the types of excesses that existed before the 2008 financial crisis.
“A dangerous cocktail has developed,” warned one central banker.
Risk factors that include unbridled growth in the junk bond market are also a cause for concern among conservative central bankers. According to the Bank for International Settlements, or BIS, a global association of central banks, about 35 percent of all corporate bonds issued in Europe in the second quarter came from companies with poor credit ratings.