Global financial system susceptible to shocks, Bailey warns G20

The global financial system is vulnerable to shocks amid a recent surge in the price of shares and other assets, Bank of England governor Andrew Bailey has warned.

Mr Bailey, chairman of the Financial Stability Board (FSB), the fiscal risk watchdog for the G20 group of nations, urged greater multilateral co-operation between nations to help support global financial systems.

In a letter to G20 ministers, he said that increased debt levels and a failure to fully implement agreed financial reforms would lead to increased vulnerability.

Mr Bailey cautioned that there could therefore be a “disorderly adjustment”, which would see asset prices slump from recent highs.

He said: “While most jurisdictions have seen a rebound in financial markets in recent months, valuations could now be at odds with the uncertain outlook, leaving markets susceptible to a disorderly adjustment.”

It comes after Wall Street stocks dipped at their fastest rate for six months following a strong period of increases.

Jamie Dimon, the boss of JP Morgan, is among those to have warned that there is a significant risk of a slump in stock valuations in the next six months to two years.

Ahead of the latest International Monetary Fund (IMF) meeting and global outlook release, Mr Bailey said reforms by the FSB are key to ensuring continued financial stability.

He said: “The reforms put in place by the FSB and other standard-setting bodies since 2009 have helped contain the fallout from more recent crises, including the Covid-19 pandemic, Russia’s illegal full-scale invasion of Ukraine and the swift resolution of the 2023 banking turmoil.

“The need for such global standards and co-operation is as clear today as it was 15 years ago – not just to prevent crises but because, ultimately, a resilient system allows for the efficient allocation of capital and supports G20 member economies in boosting growth.”