BIS chief warns soaring debt, market changes could complicate future crisis response
The head of the Bank for International Settlements warns that rising public debt, the growth of non-bank financial institutions, and new technologies could make it harder for central banks to manage future financial crises and maintain public trust.
The head of the Bank for International Settlements (BIS), Pablo Hernández de Cos, has warned that rising public debt and structural changes in financial markets could make future central bank crisis interventions more difficult and controversial.
Speaking in Vienna on Monday, Hernández de Cos—a leading candidate to become the next European Central Bank president—said the past two decades of crises had shown the importance of swift central bank action. However, he noted that the backdrop for the next crisis was changing rapidly, with public debt levels near post-World War Two highs and persistent fiscal pressures in many economies.
“If market dysfunction threatens financial stability or monetary transmission, central banks need to intervene,” he said. “But when debt is high and public financing needs are large, even a well-designed operation can be interpreted through a fiscal lens.”
Hernández de Cos also highlighted the growing influence of non-bank financial institutions—such as hedge funds, pension funds and asset managers—which have become major holders of government debt. While they support market liquidity in normal times, their use of leverage can amplify stress during turmoil, he said, citing the March 2020 “dash for cash” in US Treasury markets and Britain’s 2022 gilt market crisis.
He described the Bank of England’s response as “a blueprint” for using asset purchases as a crisis tool, but cautioned that in a larger, more persistent crisis, such commitments might not be credible. He added that online banking, social media, stablecoins and artificial intelligence could accelerate future crises, forcing policymakers to respond more quickly.
Hernández de Cos argued for stronger regulation of non-banks and emerging financial technologies to limit moral hazard and preserve the effectiveness of central bank tools. “Central banks have a key role to play, but so do regulators and governments,” he said, stressing that global cooperation and central bank swap lines remain critical for stabilising the global financial system.