IMF chief warns global financial stability at risk from banking turmoil

The head of the International Monetary Fund has warned that the global economy faces risks to its financial stability because of the turbulence in the banking sector.

Georgieva said the world economy would expand by just 3% in this year as rising borrowing costs, combined with the war in Ukraine and scarring from the Covid-19 pandemic, would suffocate growth.

Adding to a growing chorus of warnings from economic leaders, the IMF chief said it was clear that risks to financial stability had increased after the recent collapse of Silicon Valley Bank and the Swiss-government brokered rescue of Credit Suisse by UBS.

Investors will be watching shares in Deutsche Bank when European markets reopen on Monday after they led the sell-off in banking stocks on Friday.

Her stark comments came as the European Central Bank (ECB) said the recent turmoil in banking would have a real-world impact on business and growth.

The outlook for the UK after Brexit is also presenting a challenging trade-off between low growth and high inflation, putting central bankers in a tricky position when it comes to increasing interest rates.

Regulators in Switzerland continued to grapple with the fallout from the collapse of Credit Suisse. Public pressure has mounted on regulators after a vast package of support for the bank before its emergency merger with fellow Swiss bank UBS. The controversies over the bailout have added to echoes of the global financial crisis caused by the recent toppling of major financial institutions in the US and Switzerland.