Banks need to prepare for market turmoil once central banks start to raise interest rates and unwind quantitative easing, a leading policymaker has said.
Donald Kohn, a former vice-chairman of the US Federal Reserve’s board who now sits on the Bank of England’s financial policy committee, said that exit from the present emergency policy was “not without its risks and dangers”, the Times reports.
He urged them to be ready for defaults, an increase in borrowing costs and a liquidity crunch as monetary policy across the world is returned to normal.
Bank of England governor Mark Carney (pictured) has said he expects interest rates to start to rise next spring.
