A. M. The International Monetary Fund (IMF) warns that rising interest rates, while necessary to contain inflation, could generate financial instability. An IMF study, based on data from more than 6,600 banks in advanced and emerging economies, reveals that most lenders are relatively protected against inflation. However, certain banks have significant exposure to price fluctuations, which could trigger crises if not properly managed.
Differences in bank profitability in the face of inflation are due to different business models and risk management. An estimated 3% of banks in advanced economies and 6% in emerging markets have comparably high levels of risk. This suggests that abrupt monetary tightening could generate significant losses for some banks.
In emerging markets, inflation exposure appears to be higher due to more widespread price indexation. This makes their banks more sensitive to changes in interest rates, increasing the risk of financial instability if economic conditions deteriorate rapidly.
To mitigate these risks, the IMF recommends strengthening banking regulation, improving prudential supervision, and promoting stricter risk management. It also suggests increasing transparency in risk assessment to prevent uncertainty about the financial health of some banks from turning into widespread panic.
While central banks should continue to pursue monetary policies to curb inflation, they should also consider the side effects of their decisions. A balance between financial stability and inflation control will be key to avoiding further crises in the global banking sector.
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