BIS chief warns soaring debt, market changes could complicate future crisis response

• High public debt and large budget deficits could cause central bank interventions to be interpreted through a 'fiscal lens', even when operations are well-designed and aimed at addressing market dysfunction
• Non-bank financial institutions like hedge funds and pension funds have become major government debt holders, and their use of leverage can amplify stress during crises, as seen in the 2020 US Treasury 'dash for cash' and 2022 UK gilt crisis
• Emerging technologies including online banking, social media, stablecoins and AI could dramatically increase the speed of future crises, forcing policymakers to respond more quickly than in past episodes

BIS Chief Warns Soaring Debt and Market Changes Could Complicate Future Crisis Response

Bank for International Settlements (BIS) head Pablo Hernández de Cos cautioned that while central banks remain crucial for managing financial crises, rising public debt and evolving market dynamics could make future interventions more difficult and controversial.

Key Warnings

Speaking in Vienna, Hernández de Cos—a frontrunner to succeed Christine Lagarde as ECB President—noted that public debt levels are near post-World War II highs across many economies, with large budget deficits and persistent fiscal pressures. This environment complicates central banks' ability to distinguish between market dysfunction requiring intervention and legitimate investor concerns about government finances.

"Even a well-designed operation can be interpreted through a fiscal lens" when debt is high, he stated.

Market Implications

The warnings come amid a sharp global rise in bond yields and widening spreads between French and German bonds, echoing memories of the euro crisis.

Hernández de Cos highlighted growing risks from non-bank financial institutions—including hedge funds, pension funds, and asset managers—which have become major government debt holders. While supporting liquidity during normal times, their use of leverage can amplify stress during turmoil, evidenced by the March 2020 US Treasury "dash for cash" and the UK's 2022 gilt crisis.

Future Challenges

The BIS chief warned that online banking, social media, stablecoins, and AI could accelerate future crises through rapid withdrawals and fast-spreading misinformation, forcing quicker policy responses.

He called for stronger regulation of non-banks and emerging financial technologies, emphasizing that addressing future crises requires coordinated efforts among central banks, regulators, and governments, with global cooperation—particularly central bank swap lines—remaining critical for financial system stability.