BIS Chief warns rising public debt complicates central bank crisis response

Bank for International Settlements (BIS) chief Pablo Hernández de Cos has warned that rising public debt and large fiscal deficits may complicate the ability of central banks to manage future financial crises. Speaking in Vienna, Hernández de Cos noted that while central banks have historically been essential in containing market turmoil, the current economic environment is shifting.

He highlighted that public debt in many major economies has reached levels not seen since the aftermath of World War Two. This high level of debt creates a risk that central bank interventions intended to stabilize markets could be perceived as attempts to finance government fiscal policy or artificially support borrowing costs, making such actions more politically controversial.

Additionally, the growing influence of non-bank financial institutions—such as hedge funds, pension funds, and asset managers—poses new risks. While these entities provide liquidity during stable periods, their use of leverage and reliance on market-based funding can amplify volatility during periods of severe stress. This concern follows previous market instabilities, such as the 2020 US Treasury market volatility and the 2022 British gilt market crisis.