BIS warns of risky bank debts

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Central banks must raise interest rates without triggering a financial crisis for banks and households that have taken on excessive or risky debts, the Bank of International Settlements warned yesterday.

Central banks must raise interest rates without triggering a financial crisis for banks and households that have taken on excessive or risky debts, the Bank of International Settlements warned yesterday.

Western banks have taken on risky investments they could end up regretting if interest rates rise unexpectedly, it said.

The BIS, known as the central banks' central banker, said some institutions had undertaken investments based on "tenuous assumptions". "The main concern is whether the financial sector, having escaped the slowdown relatively unscathed, might be moving ahead of the business cycle," it said in its annual report.

It also said the rise in mortgage lending, especially in countries such as the UK, raised concerns over the "vulnerabilities" of consumer finances. However, the BIS said rising interest rates alone would not pose a serious threat.

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