Persistently low interest rates are encouraging investors to take dangerous risks in a quest to maintain their financial returns, the IMF said on Wednesday, raising concerns that even the current lacklustre performance of the global economy may not be sustainable.
Policymakers should urgently seek to extend banking regulations introduced after the financial crisis to other parts of the financial sector such as insurers, asset managers and pension funds, the IMF recommended in its annual Global Financial Stability Report. Regulators should demand greater oversight of these companies and disclosures about the risks they are running, the IMF said.
Tobias Adrian, the IMF’s financial counsellor, said: “The search for yield among institutional investors — such as insurance companies, asset managers and pension funds — has led them to take on riskier and less-liquid securities. These exposures may act as an amplifier of shocks.”