Financial markets could be over-heating, warns central bank body

Bank for International Settlements' quarterly health check warns global economy resembles era just before financial crash

Investors are ignoring warning signs that financial markets could be overheating and consumer debts are rising to unsustainable levels, the global body for central banks has warned in its quarterly financial health check.

The Bank for International Settlements (BIS) said the situation in the global economy was similar to the pre-2008 crash era when investors, seeking high returns, borrowed heavily to invest in risky assets, despite moves by central banks to tighten access to credit.

When economists talk about financial markets overheating, they are typically saying asset prices - given to shares, bonds or commodities - are rising too fast or have reached levels that don't justify the usability or profit-making capacity of the companies or goods that they represent. Overheating can occur when investors are overly confident that prices can rise further. But should that confidence evaporate, over-inflated asset prices will have further to fall than most.

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