IMF Addresses Vulnerabilities in Nonbank Financial Intermediaries Ecosystem and Amplification of Shocks

The International Monetary Fund (IMF) has addressed the issue of vulnerabilities in the nonbank financial intermediaries’ ecosystem and the amplification of shocks in several publications [1][3][5][6][7][8][9][10].

According to the IMF, vulnerabilities such as elevated leverage, liquidity mismatches, and interconnectedness can increase the risk of financial instability and amplify the shocks of high inflation and increased interest rates. The IMF has highlighted the need for policymakers to strike a balance between facilitating an easing of financial conditions to boost growth in the short term and containing future downside risks [1][6].

The IMF has also pointed out the risks associated with rising leverage, particularly among nonfinancial firms, which could exacerbate corporate vulnerabilities, deepen macro-financial instability, and cause long-lasting damage to economic potential [2][3]. Moreover, the IMF has found that higher leverage has been associated with rising foreign currency exposures, further exacerbating the potential risks to financial stability [9].

In addition, the IMF has highlighted the role of open-end investment funds in amplifying shocks and destabilizing asset prices through liquidity mismatches and procyclical behavior [8][10].

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