BIS Chief Warns Public Debt Complicates Crisis Management
Pablo Hernández de Cos warns that high public debt and non-bank financial institutions could hinder central banks' ability to stabilize future financial crises.
The head of the Bank for International Settlements, Pablo Hernández de Cos, warned in Vienna that soaring public debt and evolving market dynamics may complicate the ability of central banks to manage future financial crises. He stated that high debt levels and large budget deficits make it difficult for policymakers to distinguish between genuine market dysfunction and legitimate investor concerns regarding government finances.
Hernández de Cos identified non-bank financial institutions, including asset managers and hedge funds, as significant risks due to their use of leverage, which can amplify market stress. He further cautioned that the speed of future crises could be accelerated by social media, stablecoins, and artificial intelligence, which facilitate rapid information spread and online withdrawals.
While citing the Bank of England's 2022 response to the gilt market as a blueprint for asset purchases, Hernández de Cos argued for stronger regulation of emerging technologies and non-bank entities to ensure crisis-management tools remain effective.
