The deputy head of the International Monetary Fund, David Lipton, has warned that global banking system is not prepared for another downturn but that the next financial crisis may not be too far away.
He said that “crisis prevention is incomplete” more than a decade on from the last meltdown in the global banking system.
“As we have put it, ‘fix the roof while the sun shines’. But, like many of you, I see storm clouds building and fear the work on crisis prevention is incomplete.”
As reported by The Guardian, Lipton said individual nation states alone would lack the firepower to combat the next recession, while calling on governments to work together to tackle the issues that could spark another crash.
“We ought to be concerned about the potency of monetary policy,” he said of the ability of the US Federal Reserve and other central banks to cut interest rates to boost the economy in the event of another downturn, while also warning that high levels of borrowing by governments constrained their scope for cutting taxes and raising spending.
According to Lipton, the IMF went into the last crash under-resourced before it was handed a war chest worth $1 trillion from governments around the world, while adding that it was important that national leaders had agreed to complete a review of the fund’s financial firepower next year.
“One lesson from that crisis was the IMF went into it under-resourced; we should try to avoid that next time.”