Over the last week, the US Federal Reserve has raised interest rates again and the Bank of England’s minutes show three members of the Monetary Policy Committee want to tighten policy. All this suggests that it is now time to think about monetary policy normalisation. There is a real prospect that across western economies in the coming year, interest rates will be raised from emergency levels and unconventional programmes such as quantitative easing will be reversed.
Monetary policy normalisation casts several shadows over global financial stability. The first one relates to the status of banks’ balance sheet and concerns over whether banks have been pricing in risks properly in an accommodative monetary environment. The second emerges from the near-term divergence in the monetary policy trajectory across developed markets, which marks a shift from the era of globally coordinated monetary policymaking since the global financial crisis. The third concerns the need for a global, concerted regulatory approach to anchor financial stability during monetary policy normalisation. This is not guaranteed as signs of fissures have emerged in the global regulatory landscape.
All these contribute to a challenging context for the definition and implementation of business and operating models in the banking sector. The role of the Chief Risk Officer in defining strategy has never been more acute or complex.
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