Risk of sharp reversal remains: global financial overseer Carney

Sat Apr 18, 2015 3:45pm EDT
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WASHINGTON, April 18 (Reuters) - The world has adjusted well to divergent growth and monetary policy expectations but the risk of a "sharp and disorderly reversal" in financial markets remains, Financial Stability Board Chairman Mark Carney said on Saturday.

"The risk of a sharp and disorderly reversal remains, given compressed credit and liquidity risk premia," Carney, whose FSB oversees the global financial system, said in a statement to the International Monetary Fund's steering committee.

Carney, who is governor of the Bank of England, said market participants needed to be mindful of the risk of diminished market liquidity, asset price discontinuities, and contagion across markets.

"The impact of lower commodity prices, a stronger U.S. dollar and moderating economic growth may lead to further challenges for the financial resilience of some emerging market and developing economies, including the risk of capital flow volatility," he added.

The FSB has agreed on a work plan to identify financial stability risks associated with market liquidity in fixed income markets and asset management activities, he said. It will also address longer-term structural financial stability issues that may arise.

It will discuss its initial findings at its next meeting in September. (Reporting by Randall Palmer; Editing by Tim Ahmann)