The era of low interest rates is over and financial services must adapt
23 March 2023
SUGGESTED
In the Media
IEA research quoted in The Scottish Daily Express
23 March 2023
Healthcare
Housing and Planning
Matthew Lesh writes in City AM
IEA Director of Public Policy and Communications Matthew Lesh has written for City AM arguing that recent turmoil in the financial sector stemming from the end of the post-2008 low interest rate period should encourage banks to go back to basics.
Matthew wrote:
“The era of ultra-low interest rates and cheap money created malinvestment and vulnerabilities that are now being exposed – from the LDI crisis last September to crypto scams and asset bubbles. We are walking through a field of financial and economic landmines, unsure of what crisis will explode next.
“The post-2008 regulatory system was supposed to limit excessive risk-taking, provide necessary stress testing and end the “too-big-to-fail” mentality. Instead, regulators have been forced to offer liquidity to markets and bail out depositors. In the process, they are creating what economists call a moral hazard: encouraging riskier behaviour in future in the knowledge that the taxpayers will provide a backstop.
“Recent events demonstrate the need for regulators to focus on financial stability, low inflation and economic growth. It is of course ridiculous to claim that ESG is responsible for recent financial shenanigans. But it is difficult to deliver financing for climate projects, or provide loans to underserved communities, when your bank fails. The finance sector must get the basics right – only then it can devote its energy and resources to what comes after.”
Read Matthew’s full piece here.
Matthew wrote:
“The era of ultra-low interest rates and cheap money created malinvestment and vulnerabilities that are now being exposed – from the LDI crisis last September to crypto scams and asset bubbles. We are walking through a field of financial and economic landmines, unsure of what crisis will explode next.
“The post-2008 regulatory system was supposed to limit excessive risk-taking, provide necessary stress testing and end the “too-big-to-fail” mentality. Instead, regulators have been forced to offer liquidity to markets and bail out depositors. In the process, they are creating what economists call a moral hazard: encouraging riskier behaviour in future in the knowledge that the taxpayers will provide a backstop.
“Recent events demonstrate the need for regulators to focus on financial stability, low inflation and economic growth. It is of course ridiculous to claim that ESG is responsible for recent financial shenanigans. But it is difficult to deliver financing for climate projects, or provide loans to underserved communities, when your bank fails. The finance sector must get the basics right – only then it can devote its energy and resources to what comes after.”
Read Matthew’s full piece here.
SHARE
