Odd Lots
Hyun Song Shin on the New Financial Stability Risks
Aug 31, 2023
Hyun Song Shin, economic advisor and head of research at the Bank for International Settlements, shares his insights on today's evolving financial landscape. He discusses the shift from bank lending to bond-based borrowing and its inflation implications. Shin also highlights how even traditionally safe assets, like US Treasuries, can suddenly pose risks, as seen in recent crises. He emphasizes the complexity of central banking in curbing inflation while navigating high interest rates and stresses the need for coordinated policies to maintain financial stability.
41:19
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Quick takeaways
- The shift from bank lending to bond-based borrowing has introduced new risks in the financial system, challenging the traditional expectation of stable yields for bonds.
- The changing landscape of financial intermediaries, with non-bank players gaining importance, and the role of infrastructure like central counterparties and exchanges, are key factors shaping the evolving financial system.
Deep dives
Living with high levels of public debt and high inflation
One theme that has emerged from the discussions at the Jackson Hole event is the challenge of living with high levels of public debt and high inflation while having a global financial system built on bonds. This goes against the traditional expectation that bonds should have stable yields. There has been volatility in yields over the last year, and even in the last month, with spikes in mortgage rates and 30-year yields. The podcast hosts also highlight the serendipity of meeting guests on a hiking trail at Jackson Hole.
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