- Sunday, March 02, 2025
By: Shubham Ghosh
Raghuram Rajan, the former governor of India’s Reserve Bank of India and chief economist at the International Monetary Fund who predicted the global financial crisis more than a decade ago, has given a warning again — this time about the future of the banking system.
The 60-year-old has said that the banking system is headed for more turmoil after the rescues of Silicon Valley Bank (SVB) and Credit Suisse, Bloomberg reported.
According to Rajan, who served as the governor of India’s central bank under the premiership of both Manmohan Singh and Narendra Modi, said a decade of easy money and a flood of liquidity from central banks has led to an “addiction” and a fragility within the financial system as policy-makers tighten policy.
“I hope for the best but expect that there might be more to come, partly because some of what we saw was unexpected,” Rajan said in an interview in Glasgow, Scotland, according to Bloomberg.
“The entire concern is that very easy money (and) high liquidity over a long period creates perverse incentives and perverse structures that become fragile when you reverse everything,” he was quoted as saying.
Rajan’s remarks add to warnings that the troubles at SVB and Credit Suisse indicate deeper underlying problems in the financial system, the Bloomberg report added.
In 2005, Rajan warned on the banking sector as the chief economist at the IMF ahead of the global financial crisis of 2008 in a speech in Jackson Hole in Wyoming, US. It prompted Larry Summers, former US treasury secretary, to call him a “luddite”.
Rajan, who now teaches at University of Chicago Booth School of Business, said central bankers have been given a “free ride” as policy makers reverse an ultra-accommodative stance which was taken in the decade following the crisis, rapidly.
“This sense that the spillover effects of monetary policy are huge and aren’t dealt with by ordinary supervision has just escaped our consciousness over the last so many years,” Rajan was quoted as saying.
