Kroll Bond Rating Agency Releases Macro-Market Research Report on Sovereign Risk and the “Macroprudential” Illusion

NEW YORK--()--Kroll Bond Rating Agency (KBRA) releases research report on Sovereign Risk and the “Macroprudential” Illusion.

The report states that KBRA believes that two important risk trends are emerging in the world of capital finance and investment.

  • First, regulators in the industrial nations are busily trying to take risk out of the conventional banking system via higher capital requirements, limitations on explicit financial leverage and deterministic controls over entire markets and industry sectors – this even as the overall levels of public and private debt continue to grow faster than the underlying rate of economic growth.
  • Second, these same central banks and government institutions are using radical expansion of the global supply of money to boost asset prices but also avoid a meaningful restructuring of both uncollectible public and private debt. With the notable exception of Germany, which is gradually paying down public debt and slowly restructuring private obligations, the other major industrial nations largely refuse to even consider large scale debt reduction.

The reports notes that unless there is a 1) a slowdown in public debt accumulation and 2) a shift to sustainable policies that promote private sector growth in advanced economies, policies of monetary expansion will inevitably fail as fluctuating rates collide with artificially enhanced asset prices and unsustainable debt loads to generate future crises.

The report concludes that ” We believe that investors need be aware of the implicit correlation between expansionary monetary policy and rising debt levels that leads to financial market contagion, especially when it comes to sovereign risk, and structure their allocation strategies accordingly.”

To view the report, click here.

About Kroll Bond Rating Agency

KBRA is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (NRSRO). In addition, KBRA is recognized by the National Association of Insurance Commissioners (NAIC) as a Credit Rating Provider (CRP).

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Contacts

Analytic:
Kroll Bond Rating Agency
Christopher Whalen, 646-731-2366
Senior Managing Director
cwhalen@kbra.com

Contacts

Analytic:
Kroll Bond Rating Agency
Christopher Whalen, 646-731-2366
Senior Managing Director
cwhalen@kbra.com