Financial markets' shaky start to the year shows they are losing faith in the "healing powers" of central banks, the Bank for International Settlements (BIS) said on Sunday while voicing concerns over sub-zero interest rates and emerging economies.
The Swiss-based organisation, which fosters cooperation between central banks in the pursuit of monetary and financial stability, said that recent worries over China's economy, oil and commodity prices and some European banks had come as fundamental shifts take place in the global economy.
International bank-to-bank lending is contracting for the first time in two years, the use of dollar-denominated debt to drive growth in emerging markets has ground to a halt on a strengthening of the currency that has also served to send US companies rushing to borrow in euros.
At the same time, world growth remains subdued, overall debt continues to rise and negative interest rates in large parts of Europe and Japan suggest that some leading central banks are running low on ammunition to quell market volatility that could pose a threat to the global economy.
"The latest turbulence has hammered home the message that central banks have been overburdened for far too long post-crisis," the head of the BIS monetary and economics department, Claudio Borio, said in its first quarterly report of the year.
"Market participants have taken notice. And their confidence in central banks' healing powers has - probably for the first time - been faltering. Policymakers, too, would do well to take notice."
The comments dovetailed with concerns about the potential side-effects of negative interest rates, which are effectively a charge on commercial banks' spare cash.
A study in the BIS report showed the different ways negative rates were being implemented by the likes of Sweden, Denmark, Switzerland, Japan and the European Central Bank, which is expected to go even deeper into negative territory on Thursday.
Evidence from Switzerland showed that banks there had not introduced negative rates on customers' savings but had instead increased costs on loans such as mortgages to curb losses.
"If negative policy rates do not feed into lending rates for households and firms, they largely lose their rationale," the study said.
"On the other hand, if negative policy rates are transmitted to lending rates for firms and households, then there will be knock-on effects on bank profitability unless negative rates are also imposed on deposits, raising questions as to the stability of the retail deposit base."
The report also focused on another of the side-effects of the ECB's rock-bottom interest rates.
There has been a 15 percent-a-year rise in the amount of euro-denominated debt issued by companies outside the euro bloc. If they neglect to put currency hedges in place, that represents some big bets on the euro remaining weak.
Euro debt has become so popular among US companies, for example, that it has acquired its own name - the "reverse yankee". Total net issuance in euros in the fourth quarter accounted for 48 percent of debt issued by non-financial US companies.
In emerging markets (EM), meanwhile, six years of rising dollar-denominated debt issuance faltered after last year's EM sell-off pushed currencies lower and increased borrowing costs for both governments and companies.
International banks' lending to emerging markets fell 6 percent in the third quarter of last year, while outstanding international debt securities - bonds and other types of loans - contracted by $47 billion in the fourth quarter, the biggest fall in three years.
"And this has been happening as domestic financial cycles (in emerging markets) have been maturing or turning," Borio said.
"It is as if two waves with different frequencies came together to form a bigger and more destructive one."