WASHINGTON, April 17 Loose monetary policy in
the United States has encouraged weaker standards for corporate
underwriting while company debt continues to grow, posing a risk
to financial stability, the IMF warned on Wednesday.
Pension funds and insurance companies may also be taking on
more risk than they should as they search for higher-yielding
assets to fill a funding gap, which for pension funds stood at
28 percent at the end of last year, the International Monetary
Fund said in its Global Financial Stability Report.
All of this is happening while the United States is still
only one-third of the way through the current business cycle,
the Washington-based global lender said.
"Tension is building between the ongoing need for
extraordinary monetary policy accommodation and credit markets
that are maturing more quickly than in typical cycles," the
The appetite for riskier assets is also spilling over into
emerging economies as investors search for higher yields, making
these countries more vulnerable to volatile capital flows.
Overall, global financial stability has improved in the last
six months and there are few clear signs of asset bubbles, the
IMF said. But governments must remain vigilant and ensure they
are continuing structural and banking reforms - or risk sinking
into a chronic financial crisis.
The IMF's analysis could add to concerns about the side
effects of aggressive monetary easing, which is likely to
dominate meetings of finance ministers and central bankers from
the world's top economies this week.
The Bank of Japan earlier this month pledged to inject $1.4
trillion into its economy to shock it out of stagnation, fanning
concerns about currency wars, rising asset prices and
The U.S. Federal Reserve's expansive policies have also
prompted worries about asset bubbles, though its easing program
is in part meant to push investors to take on more risk to spur
Federal Reserve Governor Jeremy Stein said in February he
was concerned about possible signs of overheating in some parts
of the financial sector, especially in riskier corporate bonds.
While the IMF believes it is appropriate for advanced
nations to keep up monetary stimulus for now - while inflation
remains low and unemployment high - it is also urging
policymakers to start thinking about the consequences of ending
In the financial stability report, the fund urged countries
to closely watch banks and companies to make sure they do not
take on too much risk, and use buffers against rising leverage.
The IMF also turned an eye to ongoing banking issues in the
euro zone, where credit at banks in Cyprus, Greece, Ireland,
Italy, Portugal and Spain continues to contract, and weak
non-financial companies still have a huge burden of debt.
While Europe has made progress in building up banks' balance
sheets, EU banks may need to shed another $1.5 trillion to
return to full health, the Fund said.
And the aftershocks from Cyprus's bailout, which imposed a
tax on large savers and led to a renewed flight to safe haven
assets, showed that markets remain fragile.
The fund called on policymakers to continue to move towards
EU banking union to reduce financial fragmentation.
"A key message of this report is that addressing the old
risks is essential to leave the crisis behind," José Viñals, the
head of the IMF's monetary and capital markets department, said
in prepared remarks.
"But it also reduces the need for continued accommodative
monetary policies. This will prevent the new risks from growing
and from becoming systemic."