Commentary: The US role in the global financial system has changed. This could affect the world’s economy

It is by no means clear that the latest banking crisis has run its course.

There are concerns about the so-called shadow banking system, largely unregulated financial institutions that now make up half of all global financial assets. For example, in the US many people invest in money market funds, which pay higher interest than banks, but provide no deposit insurance.

Meanwhile, the international regulatory system created in 2008 has been either ineffective or weakened. Political pressures led the US to reduce regulation and capital requirements for its regional banks, during the Trump administration, while worries about their soundness remain.

Internationally, geopolitical tensions within the G20, due to differences between emerging market countries and G7 countries on Ukraine, have further weakened the impact of FSB recommendations.

THE FUTURE OF US GLOBAL ECONOMIC INFLUENCE

There are strong reasons to doubt whether the Fed would be willing or able to lead another large-scale 2008-style bank rescue. In the first place, in contrast to the relatively low inflation in 2008, the Fed is now facing conflicting pressures, having sharply raised interest rates to curb inflation.

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