BIS chief warns rising debt and market shifts could hinder future crisis responses

The head of the Bank for International Settlements (BIS), Pablo Hernández de Cos, has warned that rising public debt and shifting market dynamics could complicate central banks' efforts to manage future financial crises. Speaking in Vienna, Hernández de Cos emphasized the critical role central banks have played in stabilizing markets during crises over the past two decades. However, he noted that high public debt levels, near post-World War II highs in many economies, along with persistent budget deficits and fiscal pressures, could make it harder for central banks to act effectively.

Hernández de Cos highlighted the growing influence of non-bank financial institutions, such as hedge funds and asset managers, which now hold significant amounts of government debt. While these institutions support market liquidity under normal conditions, their reliance on leverage and market-based funding can amplify stress during crises, as seen in the March 2020 US Treasury market turmoil and the 2022 UK gilt market crisis. He praised the Bank of England’s response to the latter as a model for crisis management, citing limited purchase windows, clear communication, and strong governance as key elements.

The BIS chief also warned that technological advancements, including online banking, social media, stablecoins, and artificial intelligence, could accelerate future financial crises. Rapid withdrawals and the spread of misinformation could force policymakers to respond faster than before. He stressed the need for stronger regulation of non-banks and emerging financial technologies to limit moral hazard and preserve the effectiveness of central bank tools. Hernández de Cos underscored the importance of global cooperation, noting that central bank swap lines remain essential for stabilizing the financial system during acute distress.