The financial sector may be moving down the list of global risks, but this does not come as much of a relief to the banks themselves, writes Philip Alexander from the IMF and World Bank annual meetings in Washington DC.

For some time, the International Monetary Fund (IMF) and World Bank annual meetings have been dominated by discussion of what to do with that troublesome child, the global financial sector. Subprime securitisation, eurozone bond funk, overreaction to the prospect of a change in US monetary policy – all have been high on the agenda in previous years. Policy-makers were focused on how to keep the child in check.

This year, things have changed. In his letter to G20 ministers, Financial Stability Board chairman, Mark Carney, signalled that the post-crisis regulatory reform programme is almost complete. Time for a round of celebratory back-slapping and a good night’s sleep? Not quite.

The sector is undoubtedly more resilient – better capitalised, with better flows of information to supervisors to provide early warning. But finance, and indeed the whole global economy, is facing an extraordinary set of simultaneous risks that are now preoccupying the IMF and World Bank instead.

In the Middle East, the threat of extremism and the continued reverberations from the Arab Spring require an urgent response in the form of international support for economic and social stabilisation. Lebanese finance ministry director-general, Alain Bifani, lamented the inadequate response from the international community to help his country of 4.5 million cope with at least 1.5 million refugees. His long-term concern is a generation of children across the region growing up with a disrupted or non-existent education. “The only training they are getting is in terrorism,” Mr Bifani warned.

The destabilisation of Ukraine has prompted sanctions on Russia, and retaliatory steps by the Russian government. Both put pressure on an EU economy that is still treading perilously close to renewed recession. “We knew these sanctions would hit us the most, but there is no military alternative, and doing nothing would be even worse,” German finance minister, Wolfgang Schauble, told his audience in Washington.

And, in just a few days leading up to the meetings, the Ebola epidemic spreading across west Africa has changed from a local tragedy to a potential global risk. World Bank executives warn of economic damage in the region and beyond if trade and air travel routes are shut down to prevent the infection spreading further.

So the lower focus on banking and finance this year does not come as much of a relief. The risks from outside look every bit as dangerous as those inside banking were a few years ago. Banks have built up their defences through deleveraging, but geopolitical crises that cause deep economic destruction are in many ways harder to predict or to manage than plain old poor loan underwriting or excessive derivatives exposure.

Philip Alexander is senior editor of The Banker. He is also the editor of Global Risk Regulator.

With articles, reports and videos, The Banker’s View From IMF and World Bank Group Annual Meetings 2014 is your ideal guide to the event.

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