There is no panic in the financial markets, especially on Wall Street, yet, despite the good results, the most important figures in the financial world are raising alarms about possible problems.
The former head of the American investment bank Goldman Sachs, Lloyd Blankfein, warns that the greatest threats most often arise during periods of long-term stabilization.
JPMorgan Chase CEO Jamie Dimon also has a similar opinion, noting similarities to the period leading up to the 2008 crisis.
Economist Kenneth Rogoff additionally emphasizes that deregulation of the financial sector could increase the risk of a new crisis.
Experts are warning more and more loudly about a new financial crisis. It is when everyone feels safe that the biggest problems arise.
Experts are currently particularly concerned about the private loan market, which is developing increasingly faster outside the traditional banking system and beyond the standard supervision of financial institutions. This segment is gaining importance as more and more companies and investors use financing offered outside traditional banks, which may increase the risk for the entire market in the future.
Such loans are provided by investment funds, often without strict regulatory supervision, which makes it difficult to assess their quality. Analysts warn that the percentage of unpaid liabilities may reach up to 8%.
For this reason, investors are increasingly withdrawing money from these funds, which further increases the pressure on the market.
The return of risky financial instruments
Another cause for concern is the return of complex financial products similar to those that played a key role in the 2008 crisis. It was then that opaque debt-based instruments, sold on a huge scale around the world, led to a sharp market collapse after they began to lose their value massively.
Brokers on the floor of the New York Stock Exchange in New York, September 15, 2008.Spencer Platt/Getty Images/Getty Images
The collapse of financial institutions, investor panic and the freezing of lending caused a global economic crisis, the effects of which were felt by millions of people. Today's return of similar mechanisms raises fears that history may, to some extent, repeat itself.
Major banks, including Barclays, are developing instruments that allow them to bet on the collapse of specific private credit funds. These are derivative credit instruments that, in the event of problems, may accelerate the spread of the crisis.
Deregulation increases risk
One of the key challenges that economists and analysts increasingly pay attention to is the possible relaxation of regulations regulating the activities of the financial sector.
After the 2008 crisis, banking regulations were significantly tightened to reduce excessive risk and prevent a similar disaster from happening again. The following were introduced:
higher capital requirements,
stricter immunity tests
and greater supervision over the activities of the largest financial institutions.
Currently, however, partial loosening of these rules is increasingly being considered, including lowering capital requirements, which could increase banks' freedom of action, but at the same time weaken their security in the event of a crisis.
It also raises additional concerns reducing the number of experts employed in supervisory institutions. Fewer specialists mean less control over the market, slower detection of threats, and less ability to respond to growing problems before they get out of control.
The risk goes beyond the banking sector
The problems are not limited to banks.
Hedge funds today hold a significant portion of U.S. Treasuries and often operate with high levels of debt. In the event of market shocks, this may cause a domino effect and a rapid sale of assets.
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Such scenarios were already partially visible in the past, when investment funds were forced to quickly sell their assets to meet creditors' demands and regain the necessary financial liquidity.
In practice, this meant rapid selling of bonds, shares and other financial instruments, often at significantly lower prices. Such actions can further deepen panic in the market, reduce the value of assets of other participants and cause a domino effect in which the problems of some institutions quickly spread to other institutions.
The system is stronger than before, but not invincible
While the current financial system is more resilient than before the 2008 crisis, the combination of new and old threats worries experts.
Private lending, complex derivatives and possible deregulation create an environment that, under unfavorable circumstances, could lead to serious disruption.
For now, the warnings remain only a signal of caution, but past experience shows that the biggest crises very often arise when everything seems to be under control.
I’m Ashley Davis as an editor, I’m committed to upholding the highest standards of integrity and accuracy in every piece we publish. My work is driven by curiosity, a passion for truth, and a belief that journalism plays a crucial role in shaping public discourse. I strive to tell stories that not only inform but also inspire action and conversation.
