Risks That Could Trigger the Next Big Financial Crisis

The year 2017 is just around the corner and could be full of risks that could trigger the next big crisis, with the scariest source of risk on the horizon being China, reports Bloomberg.

Bloomberg Intelligence Chief Asia Economist Tom Orlik has been quoted as saying that China’s growth rate has been “driven by unsustainably rapid expansion of lending to businesses and households.”

Samuel Malone, director of specialized modeling at Moody’s Analytics, told Bloomberg that Chinese banks are “a potential detonator,” and would directly affect Southeast Asian neighbors, particularly Singapore.

Depressed lenders from developed markets and heavy corporate debts in emerging markets will also be major risks.

In its annual Global Financial Stability Report, the International Monetary Fund says, “medium-term risks continue to build.” It cites the unsettled political climate, which makes entrenched problems harder to tackle; some weak financial institutions in developed markets; and heavy corporate debts in emerging markets.

Bloomberg also reports that while the world’s banks are mostly stronger now than they were on the eve of the last financial crisis, low stock prices of U.S. banks and ultra low interest rates will not help financial institutions withstand another crisis.

The shadow banking system, which includes hedge funds, money-market mutual funds, and Wall Street securities lenders and borrowers, has also been cited as a source of risk by Vincent Reinhart, chief economist at Standish, a unit of BNY Mellon.

China’s shadow banking system is huge and poorly understood, and the losses that it suffers could quickly be transmitted to conventional banks, reports Bloomberg.


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