Geoeconomic shifts, tech disruption elevate financial risks
Darryl Chan, Deputy Chief Executive of the Hong Kong Monetary Authority, warned that fundamental structural shifts are reshaping global financial stability risks. Speaking at a joint conference, he cited geoeconomic shifts, non-bank vulnerabilities, and technological disruption as key concerns.
New fault lines in global finance
Darryl Chan highlighted three fundamental structural shifts reshaping financial stability.
Geoeconomic shifts, including regional tensions and trade conflicts, heighten uncertainty, disrupt supply chains, and constrain fiscal space, transmitting quickly to the real economy through capital flows and asset repricing.
Second, financial innovation has led to a dramatic growth in the less-regulated non-bank financial intermediation sector, which now accounts for roughly half of the global financial system.
This sector is prone to hidden leverage and liquidity mismatches, compounding market shocks.
Third, rapid technological disruption, particularly from artificial intelligence, introduces systemic risks such as the capacity to autonomously exploit vulnerabilities in critical infrastructure.
These transformations mean financial stability risks are no longer confined to predictable channels, arising from unexpected interactions of multiple stresses across markets and jurisdictions.
Building robust defenses, fostering global ties
To cope with anticipated and unforeseen shocks, Chan proposed building resilience and fostering cooperation.
Resilience demands continuous efforts in challenging assumptions, developing robust surveillance systems, comprehensive scenario planning, and building buffers.
It also requires a forward-looking mindset for future-proofing financial supervision and infrastructure, supported by good market communications.
Cooperation is essential due to deep global financial market integration, making stability impossible in isolation.
The HKMA actively participates in global financial governance, engaging with multilateral forums and central-banking counterparts to share best practices and contribute to regulatory standards.
Beyond the known unknowns
The speech highlights the complexity and interconnectedness of modern financial risks, moving beyond traditional frameworks.
While the identified risks are well-known, the emphasis on their unexpected interaction and amplification through new channels provides a crucial policy perspective.
This underscores the urgent need for adaptive regulatory frameworks and enhanced cross-border collaboration to navigate an increasingly unpredictable landscape.