Front Matter

Front Matter

International Monetary Fund. Monetary and Financial Systems Dept.
Published Date:
April 2019
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Vulnerabilities in a Maturing Credit Cycle

2019 APR



Vulnerabilities in a Maturing Credit Cycle

2019 APR

©2019 International Monetary Fund

Cover and Design: IMF CSF Creative Solutions Division

Composition: AGS, An RR Donnelley Company

Cataloging-in-Publication Data

IMF Library

Names: International Monetary Fund.

Title: Global financial stability report.

Other titles: GFSR | World economic and financial surveys, 0258-7440

Description: Washington, DC : International Monetary Fund, 2002- | Semiannual | Some issues also have thematic titles. | Began with issue for March 2002.

Subjects: LCSH: Capital market—Statistics—Periodicals. | International finance—Forecasting—Periodicals. | Economic stabilization—Periodicals.

Classification: LCC HG4523.G557

ISBN 978-1-49830-210-4 (Paper)

  • 978-1-49830-213-5 (ePub)
  • 978-1-49830-215-9 (Mobi)
  • 978-1-49830-217-3 (PDF)

Disclaimer: The Global Financial Stability Report (GFSR) is a survey by the IMF staff published twice a year, in the spring and fall. The report draws out the financial ramifications of economic issues highlighted in the IMF’s World Economic Outlook (WEO). The report was prepared by IMF staff and has benefited from comments and suggestions from Executive Directors following their discussion of the report on March 21, 2019. The views expressed in this publication are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Directors or their national authorities.

Recommended citation: International Monetary Fund. 2019. Global Financial Stability Report: Vulnerabilities in a Maturing Credit Cycle. Washington, DC, April.

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Editor’s Note (April 8, 2019)

This online version of the GFSR has been updated to reflect the following changes to the print version:

  • –On page 9 (Figure 1.6), a new legend in panel 2 has been added.
  • –On page 36 (Figure 1.24), this sentence has been added to the note: “The numbers for China refer to the values of the two bars and the dot.“
  • –On page 38 (Figure 1.25), the reference to “panel 6” was changed to “panel 4” in the note.


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The data and analysis appearing in the Global Financial Stability Report are compiled by the IMF staff at the time of publication. Every effort is made to ensure their timeliness, accuracy, and completeness. When errors are discovered, corrections and revisions are incorporated into the digital editions available from the IMF website and on the IMF eLibrary (see below). All substantive changes are listed in the online table of contents.

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The Global Financial Stability Report (GFSR) assesses key risks facing the global financial system. In normal times, the report seeks to play a role in preventing crises by highlighting policies that may mitigate systemic risks, thereby contributing to global financial stability and the sustained economic growth of the IMF’s member countries.

The analysis in this report was coordinated by the Monetary and Capital Markets (MCM) Department under the general direction of Tobias Adrian, Director. The project was directed by Fabio Natalucci, Deputy Director, as well as by Claudio Raddatz and Anna Ilyina, both Division Chiefs. It benefited from comments and suggestions from the senior staff in the MCM Department.

Individual contributors to the report were Adrian Alter, Prasad Ananthakrishnan, Sergei Antoshin, Magally Bernal, Peter Breuer, John Caparusso, Sally Chen, Shiyuan Chen, Yingyuan Chen, Kevin Chow, Fabio Cortes, Andrea Deghi, Dimitris Drakopoulos, Martin Edmonds, Rohit Goel, Alexei Goumilevski, Tryggvi Gudmundsson, Frank Hespeler, Henry Hoyle, Mohamed Jaber, David Jones, Mitsuru Katagiri, Will Kerry, Oksana Khadarina, Piyusha Khot, Robin Koepke, Elizabeth Mahoney, Sheheryar Malik, Rebecca McCaughrin, Aditya Narain, Evan Papageorgiou, Thomas Piontek, Jochen Schmittmann, Sohaib Shahid, Juan Solé, Ilan Solot, Nico Valckx, Constant Verkoren, Jeffrey Williams, Peichu Xie, Janice Yi Xue, Akihiko Yokoyama, and Xingmi Zheng. Magally Bernal, Monica Devi, and Breanne Rajkumar were responsible for word processing.

Gemma Diaz from the Communications Department led the editorial team and managed the report’s production with editorial assistance from Sherrie Brown, Christine Ebrahimzadeh, Lucy Scott Morales, Nancy Morrison, Katy Whipple of The Grauel Group, AGS, and Vector Talent Resources.

This issue of the GFSR draws in part on a series of discussions with banks, securities firms, asset management companies, hedge funds, standard setters, financial consultants, pension funds, central banks, national treasuries, and academic researchers.

This GFSR reflects information available as of March 21, 2019. The report benefited from comments and suggestions from staff in other IMF departments, as well as from Executive Directors following their discussion of the GFSR on March 21, 2019. However, the analysis and policy considerations are those of the contributing staff and should not be attributed to the IMF, its Executive Directors, or their national authorities.


Markets sold off sharply late last year, broadly across asset classes, amid growing signs of a slowing global economy and rising concerns about US-China trade tensions. Against a backdrop of rising downside risks, policymakers across the globe took steps to prevent a sharper deceleration of the economy. Such a forceful response supported market sentiment and triggered a sharp rebound in risk assets. Despite this recent improvement, financial markets remain susceptible to a sudden tightening in financial conditions. Potential triggers include a sharp repricing of risk, an intensification of trade tensions, a further slowdown in global economic activity, or political shocks.

An abrupt deterioration in financial conditions could unmask financial fragilities that have built during the period of very low interest rates. In this issue of the Global Financial Stability Report we are introducing a more structured, systematic approach aimed at monitoring financial vulnerabilities. Using data back to 2000 for 29 systemically important economies that account for a significant share of the global economy, we assess the level of vulnerability across regions and sectors (banks, nonbank financial institutions, sovereigns, firms, and households).

This new framework detects elevated financial vulnerability in several sectors around the world, including sovereigns, firms, and nonbank financial institutions. These vulnerabilities could turn into powerful amplification mechanisms if adverse shocks materialize. For example, the level of corporate debt has been rising around the world, and there is a weak tail of companies with high leverage and weak earnings prospects. There are growing signs that this credit cycle may be maturing, and risks of an economic slowdown are rising. The most highly indebted companies could be vulnerable to such a shock. While fundamentals in emerging markets are stronger and policy frameworks generally more resilient than in the past, some countries have low reserves, high leverage, or high foreign currency exposures that could make them more vulnerable to capital flow pressures. Furthermore, in Europe, fiscal challenges in some countries have reignited worries about the sovereign-bank nexus as a potentially powerful amplification mechanism in economies with more indebted sovereigns. Finally, housing markets in many advanced and emerging markets are at risk.

In sum, these rising financial vulnerabilities point to elevated medium-term risks to financial stability. Policymakers should act now to reduce these vulnerabilities while they can. Countercyclical capital buffers should be activated in countries with rising vulnerabilities, and macroprudential tools should be developed to contain corporate vulnerabilities. Monetary policies should remain data dependent and well communicated to avoid market overreaction and prevent further growth deceleration.

Tobias Adrian

Financial Counsellor

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