Glasgow: Former Governor of Reserve Bank of India Reghuram Rajan warned of more troubles in the banking system even after the rescue of Silicon Valley Bank and Credit Suisse.
The former chief economist of International Monetary Fund said easy money and a flood of liquidity from central banks for a decade resulted into an‘ addiction’ leading to fragility within financial system.
Rajan, who predicted the global financial crisis more than a decade ago, said that ‘easy money and high liquidity over a long period creates perverse incentives and perverse structures that become fragile when you reverse everything’, Bloomberg quoted him as saying.
However Rajan told the interview that he hoped for the best while still expecting more troubles to come.
During his Jackson Hole speech in 2005 Rajan warned banking sector ahead of the global financial crisis.
Rajan, who is now a professor at University of Chicago Booth School of Business, was subsequently called by US Treasury Secretary Larry Summers as a ‘ luddite’.
He was praised for handling of Indian economy while serving as the Governor of central bank between 2013 and 2016.