IMF warns growing inequality could cause a new financial crisis
The head of the International Monetary Fund (IMF) has called on the world’s financial sector to address near-record levels of inequality within countries that could be a harbinger of a new financial crisis.
IMF managing director Kristalina Georgieva issued a “call to action”, urging a shift to facilitate more lending to small and women-led businesses, which in turn would help bolster resilience in the event of a future crisis.
“Our new research shows that inequality tends to increase before a financial crisis, signaling a strong link between inequality and financial stability,” she said, comparing it the boom of the 1920s before the Great Depression.
An IMF report released on Friday showed expanding financial services to more low-income households, women and small businesses, could increase the complexity of the financial sector through inclusivity.
“If we act, and act together, we can avoid repeating the mistakes of the 1920s in the 2020s,” Georgieva told an event at the Peterson Institute for International Economics.
She said the IMF would use the new research in its assessment and surveillance of financial sector stability as well as improving financial literacy among less “sophisticated” populations.
Georgieva has made reversing inequalities one of her top priorities since joining from the World Bank last October.
She said it was important to maintain high lending standards but the widening gap between rich and poor needed reversing.