Jaime Caruana said investors have become too focused on achieving higher returns and are failed to take into account the risk of monetary tightening including interest rate rises. He suggested as central banks rein in liquidity, the huge private credit boom seen across developed and emerging markets could cause a financial collapse as borrowing costs jump. 

Speaking to the Telegraph, he said: “Markets seem to be considering only a very narrow spectrum of potential outcomes. They have become convinced that monetary conditions will remain easy for a very long time, and may be taking more assurance than central banks wish to give.”

Caruana noted debt ratios in the developed economies have risen by 20 percentage points to 275% of GDP since the crisis, while emerging markets have seen debt ratios rise 20 percentage points to 175% of GDP.

A fresh financial crisis could include countries such as Brazil, India and China which have become more developed since 2007, he suggested.

“It may be the case that the debt is better distributed because some highly-indebted countries have deleveraged, like the private sector in the US or Spain, and banks are better capitalised. But there is also now more sensitivity to interest rate movements,” he added.