Refers to the set of policy measures introduced by Japanese Prime Minister Shinzo Abe after the December 2012 elections to boost the domestic economy. The set of policies encompasses three “arrows”: monetary stimulus, fiscal flexibility, and structural reforms.



Refers to the set of policy measures introduced by Japanese Prime Minister Shinzo Abe after the December 2012 elections to boost the domestic economy. The set of policies encompasses three “arrows”: monetary stimulus, fiscal flexibility, and structural reforms.

Accommodative policies

Central bank policies designed to stimulate economic growth by making borrowing less expensive.

Additional Tier 1 capital

The sum of (1) instruments issued by banks that meet the criteria for inclusion in Additional Tier 1 capital (and are not included in Common Equity Tier 1); (2) stock surplus (share premium—the value of paid-in capital that exceeds the shares’ nominal value) resulting from the issuance of instruments included in Additional Tier 1 capital; (3) instruments issued by consolidated subsidiaries of the bank and held by third parties that meet the criteria for inclusion in Additional Tier 1 capital and are not included in Common Equity Tier 1; and (4) applicable regulatory adjustments. See Common Equity Tier 1 and Tier 1 capital.

Asset encumbrance

An asset is considered encumbered if it has been pledged or may be required to secure or collateralize a transaction from which it cannot be freely withdrawn. The asset may be pledged to reduce the credit risk of the underlying transaction (for example, a “credit enhancement”).

Bail in

A statutory power to restructure the liabilities of a distressed financial institution by writing down, or converting to equity, its unsecured debt.

Bail-in debt

Also frequently called bailin-able debt refers to any liabilities that can be “bailed-in,” by being written off, written down, or converted into equity through the application of statutory bail-in powers in a bank resolution.

Balance-sheet constraints

In the context of Chapter 2, constraints related to the capital or liquidity position of banks, to their access to market finance or, more generally, to their cost of funds, all of which can make lending by banks more difficult or expensive.

Bank insolvency

A bank becomes insolvent when its equity value falls below zero—namely, when the value of its assets falls below the value of its debt. Before becoming insolvent, a bank breaches minimum regulatory capital requirements, which usually leads to a series of actions from the supervisor, including, but not limited to, intensified supervisory monitoring, restrictions on dividend payouts, and instructions to take specific managerial actions.

Bank resolution

There are two broad forms of bank resolution. One is a liquidation—namely a “gone concern” resolution, under which a bank ceases to operate and its assets are distributed among creditors according to their seniority. The other is a “going concern” resolution, under which some parts of the bank’s operations continue, typically with some financial and operational restructuring. The latter could include purchase and assumption (P&A): a healthy bank purchases the assets and assumes the liabilities of an unhealthy bank, and a bridge bank, authorized to hold the assets and liabilities of an unhealthy bank, continues the bank’s operations until it is solvent and is acquired by another entity or until it is liquidated.

Banking union

A European Commission policy response to the global financial crisis: establishment of a single supervisory-regulatory framework, harmonized national resolution regimes for credit institutions, and harmonized standards across euro area national deposit insurance programs.

Basel Committee on Banking Supervision (BCBS)

A committee of banking supervisory authorities that provides a forum for regular cooperation on banking supervisory matters. The committee develops guidelines and supervisory standards in various areas, including the international standards on capital adequacy, the Core Principles for Effective Banking Supervision, and the Concordat on cross-border banking supervision.

Basel III

A comprehensive set of reform measures introduced as a result of the global financial crisis to improve the banking sector’s ability to absorb financial and economic shocks, enhance banks’ risk management and governance, and increase transparency and disclosure. These measures revise the existing definition of regulatory capital under the Basel Accord, enhance capital adequacy standards, and introduce minimum liquidity adequacy standards for banks.

CDS spread

A credit default swap (CDS) is a credit derivative whose payout is triggered by a “credit event,” often a default. The “spread” of a CDS is the annual amount (the “premium”) the protection buyer must pay the protection seller over the length of the contract, expressed as a percent of the notional amount.


Assets pledged or posted to a counterparty to secure an outstanding exposure, derivative contract, or loan.

Common Equity Tier 1 (CET1)

The sum of (1) common shares issued by a bank that meet the regulatory criteria for classification as common shares (or the equivalent for non-joint-stock companies); (2) stock surplus (share premium—the value of paid-in capital that exceeds the shares’ nominal value) resulting from the issuance of instruments included in CET1; (3) retained earnings; (4) accumulated other comprehensive income and other disclosed reserves; (5) common shares issued by consolidated subsidiaries of the bank and held by third parties (that is, minority interest) that meet the criteria for inclusion in CET1 capital; and (6) applicable regulatory adjustments. See Tier 1 capital.

Contingent convertible bonds or CoCos

Bonds with principal and coupon payments that are automatically converted into equity or written down, in accordance with their contractual terms, when a predetermined trigger event occurs.

Contingent cost

Cost that may or may not materialize, depending on the outcome of a future event.

Corporate spread

Difference between the yield on a corporate bond and the yield on a government bond of the same maturity.


Movement of an economic or financial quantity that is opposite to the economic cycle. For example, countercyclical capital buffers are built up during an economic upturn so that they can be drawn down in a downturn.

Credit cycle

The expansion and contraction of credit over time.

Credit guarantee

A promise to repay the lender if the borrower defaults.

Credit policies

Policies implemented to promote credit creation.

Credit registry

A database, often maintained by central banks or bank supervisors, with detailed information on loans granted by financial intermediaries. In particular, a credit registry usually contains detailed information about both the borrower and the lender.

Credit risk

The risk that a party to a financial contract will incur a financial loss because a counterparty is unable or unwilling to meet its obligations.

Creditless recovery

A situation in which economic recovery after a downturn is not associated with corresponding growth in credit.

Currency overlay funds

Structured products that feature an outright investment in an underlying asset, such as a domestic stock, compounded with an “overlay” exposure to a (possibly unrelated) currency.

Debt overhang

A situation in which excessively indebted borrowers do not act as they would if they had less debt outstanding. For example, corporations might not pursue otherwise profitable business opportunities, or highly indebted households may choose not to invest or consume, but rather pay off their loans.

Debt restructuring

A change in the terms of a borrower’s outstanding debt, often to the benefit of the borrower.


The reduction of the leverage ratio—the percent of debt on a financial institution’s balance sheet.

Deposit preference

Preference given to depositors in the creditor hierarchy that gives them a preferential claim over the assets of a failed deposit-taking institution compared with other senior unsecured creditors.

Direct credit easing

Direct purchases (or sales) by the central bank in specific credit market segments with impaired functioning.


A measure of the sensitivity of bond prices to interest rate fluctuations, based on the bond’s weighted average cash flows.

Earnings before interest, taxes, depreciation, and amortization (EBITDA)

A measure of a company’s operating cash flow obtained by looking at earnings before the deduction of interest expenses, taxes, depreciation, and amortization. This measure is used to compare companies’ profitability without the accounting and financing effects of various asset and capital structures. This measure may be of particular interest to creditors because it represents a company’s income available for interest payments.


In a statistical model, endogeneity may arise when an independent variable (regressor) is correlated with the error term, which makes it difficult to identify causal relationships. Endogeneity may be caused, for example, by omitted variables or simultaneity.

European option

An option that may be exercised only on its expiration date.

European Stability Mechanism (ESM)

An international organization that assists members of the euro area in financial difficulty to safeguard the financial stability of the euro area. The ESM may raise funds, for example, by issuing bonds and other debt instruments and entering into arrangements with euro area members.


Additional loans by banks to stressed borrowers to enable them to repay existing loans or interest. This practice can prevent loans from becoming nonperforming, but it further increases a bank’s exposure to a troubled borrower.

Exogenous variable

In an econometric model, an explanatory variable is exogenous if it is not correlated with the error term.


Cost or benefit arising from an economic activity that affects not only those engaged in the activity but also those not engaged in the specific activity.

Financial fragmentation

A broad retrenchment in cross-border flows and assets so that private capital is invested and held more along national lines. In a currency union such as the euro area, fragmentation can lead to a breakdown in monetary policy transmission across the region’s banking and credit markets.

Fire sale

A panic condition in which many holders of an asset or class of assets attempt a market sale, thereby driving down the price to extremely low levels. A fire sale may also denote a seller’s acceptance of a low price for assets when faced with bankruptcy or other impending distress.

Fitted values

Values predicted by a model that has been fitted to a set of data.

Fixed-rate full allotment

Under fixed-rate full allotment liquidity provisions, central bank counterparties’ bids are fully satisfied (against adequate collateral) at a predetermined price.

Flexible Credit Line (FCL)

An IMF credit line for the purpose of crisis prevention and mitigation for countries with very strong economic fundamentals and policy track records.


A temporary postponement of loan payments granted by a lender or creditor. Forbearance gives the borrower time to make up overdue payments on a loan.


A lender’s seizure of pledged or mortgaged assets, such as a house, usually with the intention of selling them to recover part or all of the amount due from the borrower.

Funding cost

Cost at which banks can obtain funds (in the form of equity or debt).

Funding liquidity risk

The risk that increases in assets cannot be funded or obligations met as they come due without incurring unacceptable losses. Funding liquidity risk sometimes refers to the risk that solvent counterparties might have difficulty borrowing in the very short term to meet required liability payments.

Global systemically important bank (G-SIB)

Large banking institution with global operations with a potential impact on the financial system. The Financial Stability Board (FSB) has tentatively identified 29 global banks as G-SIBs. These banks have been provisionally earmarked for additional loss absorbency, or capital surcharges, ranging from 1 percent to 2.5 percent of the ratio of Common Equity Tier 1 capital to risk-weighted assets.

Government-sponsored enterprise (GSE)

A financial institution that provides credit or credit insurance to specific groups or areas of the economy, such as farmers or housing. In the United States, such enterprises are federally chartered and maintain legal and/or financial ties to the government.

Great Moderation

Period beginning in the 1980s of substantially reduced macroeconomic volatility in the United States.


In an econometric model, a parameter is said to be identified if it can be consistently estimated from the observed data.

Indirect credit easing

The provision of long-term funds to banks by the central bank (instead of through regular weekly operations) specifically so that banks can expand lending to firms and households.

Information asymmetry

Situation in which one party in a transaction has more or better information than the other. This imbalance in information can potentially affect the nature of the transaction and lead to a market failure. See Market failure.

Instrumental variable (instrument)

Alternative variable used in an econometric analysis whose original variable represents either cause or effect. Ideally, an instrumental variable is highly correlated with the original variable so that it behaves like the original variable, but it should have little correlation with the dependent variable to eliminate effects of dependent variable movements.

Insured deposits

Deposits insured by deposit guarantee programs. Some types of deposits, such as retail deposits, are eligible for the insurance but are not insured because the amount of the deposit exceeds the maximum insurance coverage.

Interest coverage ratio (ICR)

Earnings before interest, taxes, depreciation, and amortization (EBITDA) divided by the interest expense. It measures firms’ ability to service their debt.

Jumbo loan

In the U.S. mortgage market, a mortgage loan that exceeds a certain legally determined limit and can therefore not be sold by banks and other lenders to government-sponsored enterprises.

Lending standards

Internal guidelines or criteria that reflect the conditions under which a bank will grant a loan. These include various nonprice lending terms in a typical bank business loan or line of credit, such as collateral, covenants, and loan limits.


The proportion of debt to equity (also assets to equity) often expressed as a multiplier, such as 20X, or the capital-to-asset ratio in banking, expressed as a percent. Leverage can be built up by borrowing relative to a fixed amount of capital (on-balance-sheet leverage) or through off-balance-sheet transactions that increase the future exposure of the bank relative to its loss-absorbing capacity. See Loss-absorbing buffers (or capacity).

Leverage ratio

A bank’s leverage ratio typically refers to Tier 1 capital as a ratio of adjusted assets. Assets are adjusted for intangible assets not included in Tier 1 capital.

Liquidity coverage ratio (LCR)

A liquidity standard introduced by Basel III. It is defined as the stock of high-quality liquid assets as a proportion of the bank’s “net cash outflows over a 30-day time period.” Two types of liquid assets are included, both of which should have high credit quality and low market risk: Level 1 assets should be unlikely to suffer large price changes during periods of distress; Level 2 assets are more likely to suffer price changes and be subject to a haircut and a limit on their quantity in the overall liquidity requirement.

Loan covenants

Provisions in a loan agreement binding on the borrower or lender.

Loan loss provision

Losses (noncash charge to earnings) that a bank expects as a result of uncollectible or troubled loans and that is used to create a loan loss reserve. Examples include transfers to bad debt reserves (Japan) and amortization of loans (Japan).

Long-term refinancing operation (LTRO)

Open market operations conducted by the European Central Bank to provide long-term liquidity to the banking system.

Loss-absorbing buffers (or capacity)

Bank liabilities that can be used to absorb losses from assets to maintain the bank’s viability. Equity and capital-qualifying debt, recognized under bank capital rules, are important components. Additional debt instruments could also be used to absorb losses without going through a liquidation process, including under statutory bail-in powers.

Macroprudential policies

Policies to maintain the safety and soundness of the financial system as a whole (for example, countercyclical capital buffers).

Mark-to-market valuation

The act of recording the price or value of a security, portfolio, or account to reflect its current market value rather than its book value.

Market failure

Occurs when free markets fail to allocate resources efficiently. Market failures are often associated with asymmetric information (when buyers and sellers do not operate with the same set of information), non-competitive markets (such as monopolies), externalities (see externality), or public goods (when the traded good cannot be excluded from others’ use).

Market liquidity

Ability to trade an asset’s large nominal value without significantly altering its market price.

Microprudential policies

Supervisory and regulatory policies aimed at maintaining the safety and soundness of individual financial institutions. Examples are capital and liquidity requirements, banks’ recovery and resolution plans, restrictions on executive compensation, limits on dividend distributions, etc.

Model herding

Tendency for financial sector players to act together, often as the result of using similar common financial models.

Money market mutual fund (MMMF)

An open-ended mutual fund that invests in short-term money market securities, such as U.S. Treasury bills and commercial paper.

Moral hazard

A situation in which an agent (an individual or institution) will act less carefully than otherwise because the consequences of a bad outcome will be largely shifted to another party. Often such behavior is present because the other party cannot observe the actions. For example, a financial institution may take excessive risks if it believes that governments will support them during a crisis and that governments cannot observe the risky behavior ex ante to prevent it.

Mortgage-backed security (MBS)

A security, backed by pooled mortgages on real estate assets, that derives its cash flows from principal and interest payments on those mortgages. An MBS can be backed by residential mortgages (RMBS) or mortgages on commercial properties (CMBS). A private-label MBS is typically a structured credit product. RMBSs that are issued by a government-sponsored enterprise are not structured (that is, do not have a tiered or tranched payments structures with payment priorities to the different holders).

Mortgage real estate investment trusts (mREIT)

Investment vehicles designed for borrowing at short-term rates and investing in long-term mortgage-related securities.

Net stable funding ratio (NSFR)

Introduced by Basel III to provide a more sustainable maturity structure of assets and liabilities. The NSFR stipulates that the ratio of a bank’s available stable sources of funding to its required stable funding be greater than 100 percent. Each asset category (including off-balance-sheet contingent instruments) is assigned a factor to reflect its potential liquidity characteristics. The NSFR aims to limit overreliance on short-term wholesale funding during times of buoyant market liquidity and to encourage better assessment of liquidity risk across all on- and off-balance-sheet items.


Financial institutions that do not have full banking licenses or are not supervised by a national or international banking regulatory agency. They facilitate bank-related financial services, such as investment, risk pooling, contractual savings, and market brokering, and can include money market mutual funds, investment banks, finance companies, insurance firms, pension funds, hedge funds, currency exchanges, and microfinance organizations.

Nonperforming loan (NPL)

A loan for which the contractual payments are delinquent, usually defined as being overdue for more than a certain number of days (for example, more than 30, 60, or 90 days). The NPL ratio is the amount of nonperforming loans as a percent of gross loans.

Originate-to-distribute model

A banking model, popular in North America, whereby banks tend to distribute loans, such as mortgages, credit card credits, and corporate loans, that they originate to other investors.


When issuing covered bonds, issuers usually pledge collateral so that the total value of the collateral exceeds the borrowed amount. The extent of overcollateralization varies significantly across bonds, ranging from a few percent to well over 100 percent. A rating agency will often require a certain degree of overcollateralization for the bond to attain a high rating (for example, AAA).

Quantitative easing (QE)

Direct purchases of government bonds by the central bank, usually when the official policy interest rate is at or near the zero lower bound.

Quantitative and qualitative monetary easing (QQME)

Policies introduced by the Bank of Japan that involve significantly increasing its holdings of government bonds and other assets through extending the maturity of Japanese government bond purchases. The aim is to achieve a consumer price index stability target of 2 percent year over year as soon as possible.

Pari passu

When creditors rank equally in the creditor hierarchy for repayment of their debt from the obligor’s assets.

Perpetual bonds

Perpetual bonds, also known as perp bonds, are those with no maturity date.

Pillar 1 (of Basel II)

One of the three mutually supporting pillars that form the Basel II accord. Pillar 1 sets a minimum capital requirement for all internationally active banks that covers credit risk, operational risk, and market risk.

Pillar 3 (of Basel II)

One of the three mutually supporting pillars that form the Basel II accord. Pillar 3 provides disclosure requirements for information regarding regulatory capital ratios.

Preferred creditor

An individual or organization that has repayment priority if the debtor declares bankruptcy.

Preferred share

A preferred share (or stock) is an equity security that has features not possessed by common stock, including properties of both an equity and bonds and is generally considered a hybrid instrument. It usually has no voting rights, but may carry dividends and may have priority over common stock in the payment of dividends, and may receive cash flows upon liquidation.

Price-to-book ratio

Used to compare a firm’s stock market value to its book value. It is calculated by dividing the current closing price of the stock by the firm’s recent-quarter accounting book value per share.

Primary market

The financial market that deals with the issuance of new financial instruments, such as stock and bonds. See also Secondary market.

Probability of default (PD)

Likelihood of default over a given time horizon.

Prudential measures

These comprise micro- and macroprudential policy measures.

Regulatory forbearance

A situation in which bank regulators or supervisors allow banks to avoid adhering to established regulations. To temporarily help borrowers, regulators or supervisors may allow banks to avoid recognizing nonperforming loans on their balance sheets or discourage banks from seizing collateral underlying their loans.

Relationship banking

A situation in which a bank attempts to cultivate a long-term relationship with their borrowers. Typically, a bank will attempt to accumulate soft (proprietary) information in existing customers in addition to hard (quantifiable, verifiable) information to assess a borrower’s creditworthiness. Various products, such as long-term contracts, can help to establish a borrower’s long-term commitment to the bank.

Repurchase (repo) transaction

A sale of securities coupled with an agreement to repurchase the securities at an agreed price at a future date. This transaction occurs between a cash borrower (or securities lender)—typically a fixed-income securities broker-dealer—and the cash lender (or securities borrower), such as a money market mutual fund or a custodial bank. The securities lender receives cash in return and pledges the legal title of a security as collateral.

Return on assets (RoA)

The amount an investor would earn from a firm as a proportion of the total assets. Usually calculated as: (Net income before preferred dividends plus ((interest expense on debt-interest capitalized) multiplied by (1 minus tax rate))) divided by last year’s total assets multiplied by 100.

Risk premium

The extra expected return on an asset that investors demand in exchange for accepting its higher risk.

Secondary market

The financial market in which previously issued financial instruments, such as stock or bonds, are bought and sold. The existence of liquid secondary markets can encourage people to buy in the primary market, as they know they are likely to be able to sell easily should they wish to. See Primary market.

Secured creditor

Any creditor or lender that takes collateral for the extension of credit, loan, or bond issuance.

Secured funding

Funding secured by certain collateral, including repos, asset-backed securities, mortgage-backed securities, and covered bonds. At liquidation, secured debt holders have priority claim up to the value of the pledged collateral over general creditors, including depositors.


The creation of securities from a reference portfolio of preexisting assets or future receivables that are placed under the legal control of investors through a specially created intermediary: a “special purpose vehicle” (SPV) or “special purpose entity” (SPE). In the case of “synthetic” securitizations, the securities are created from a portfolio of derivative instruments.

Senior creditor

A creditor who receives higher priority for the repayment of a debt instrument from the obligor’s assets, for example, compared to subordinated or junior creditors.

Shadow banks

Nonbank financial intermediaries that provide services similar to traditional commercial banks, but are not regulated or supervised like a bank. These can include hedge funds, money market funds, and structured investment vehicles (SIVs), depending on their investment and funding strategies.


In the context of Chapter 2, a variable that shifts either the credit supply curve or the demand curve, without affecting the other.

Single supervisory mechanism (SSM)

A common banking supervision framework under the aegis of the European Central Bank for the euro area banks, as proposed by the European Commission in September 2012.

Small and medium enterprises (SMEs)

In Europe, these firms are classified based on the number of employees and balance sheet turnover (according to EU law).

Stop-loss sales

Sales orders that are executed when a security falls to a prespecified price.

Stress test

A process that evaluates an institution’s ability to financially withstand adverse macroeconomic and financial situations.

Subordinated debt (or junior debt)

This debt instrument receives lower seniority than general debt in the event that a company falls into liquidation or bankruptcy, and it receives payments only after all senior debt holders are paid but before equity holders receive any money.


Interest rate instruments that allow investors to take a view on future interest rate volatility, using options to trigger underlying interest rate swap agreements. A 10-year by 10-year swaption allows an investor to buy/sell a 10-year option on an underlying interest rate swaps contract with a 10-year maturity.

Tangible assets (TA)

Total assets less intangible assets (such as goodwill and deferred tax assets).

Tangible leverage ratio

A measure of financial strength using the ratio of a bank’s total liabilities to its shareholder’s equity less goodwill and tangible assets. It is not a regulatory requirement.

Term premium

The premium in terms of yield that an investor expects to receive for buying longer-dated securities compared to the yield received if short-term securities were to be reinvested as they come due until the maturity of the longer-dated securities.

Tier 1 capital

Under Basel III, Tier 1 capital (or going concern capital) comprises Common Equity Tier 1 capital and Additional Tier 1 capital. See Common Equity Tier 1 capital and Additional Tier 1 capital.

Tier 1 capital ratio

This is the ratio of a bank’s Tier 1 capital to its total risk-weighted assets (RWA). Under Basel III, banks in member countries are required to meet the minimum Tier 1 capital ratio requirement of 6 percent and Common Equity Tier 1 capital ratio of 4.5 percent by January 1, 2015. See Tier 1 capital.


The process that a financial institution, such as a bank or insurer, uses to assess the eligibility of a customer to receive a financial product, such as credit or insurance.

Universal banking model

Banking system, popular in Europe, whereby banks often provide a range of financial products and services, including both investment and commercial banking, transaction banking, asset gathering, and retail banking.

Unsecured creditor

Any creditor or lender that lends money without obtaining prespecified assets as collateral.

Value-at-risk (VaR)

An estimate of the loss, over a given horizon, that is statistically unlikely to be exceeded at a given probability level, usually based on the historical returns, covariances, and volatilities of a portfolio of assets.

Vertical (bull) spread

An options strategy involving buying a call and selling a put option on the same underlying security with the same expiration date but at different strike prices. In Chapter 3, value of senior debt mirrors a strategy in which the call is purchased at a lower strike price than the put is sold.

Vienna Initiative

The European Bank Coordination “Vienna” Initiative (EBCI) was launched in January 2009 to provide a framework for coordinating the crisis management and resolution regime that involved large cross-border banking groups in emerging Europe. The European Bank for Reconstruction and Development, the IMF, the European Commission, and other international financial institutions initiated a process to address possible collective actions for dealing with financial instability. In a series of meetings, the international financial institutions and policymakers from home and host countries’ banks met with commercial banks active in emerging Europe to discuss what measures might be needed to reaffirm their presence in the region in general and, more specifically, in countries that were receiving balance of payments support from the international financial institutions.


Chicago Board Options Exchange Volatility Index that measures market expectations of financial volatility over the next 30 days. The VIX is constructed from S&P 500 option prices.

Wholesale funding

Bank funding instruments typically issued in money and capital markets, including interbank deposits, commercial paper (CPs), certificates of deposit (CDs), repurchase agreements (repos), swaps, and various kinds of bonds. These are typically purchased by institutional investors, including other banks.

Annex: IMF Executive Board Discussion Summary

The following remarks were made by the Acting Chair at the conclusion of the Executive Board’s discussion of the World Economic Outlook, Global Financial Stability Report, and Fiscal Monitor on September 23, 2013.

Executive Directors broadly shared the staff’s assessment of the state of the global economy and financial markets, risks, and key policy recommendations. They observed, in particular, that global growth remains subdued and that uncertainty and downside risks dominate the outlook. The recovery in the United States and Japan has gained ground and the euro area is pulling out of recession, while growth in many emerging market economies has slowed. Directors underscored that policymakers in all economies have a shared responsibility to sustain balanced growth while continuing to build resilience.

Directors stressed that changing growth dynamics, combined with the anticipation of the start of the normalization of U.S. monetary policy, pose new policy challenges, particularly in emerging market economies. Many of these countries have recently experienced increased capital outflows, currency depreciation, lower equity prices, and higher sovereign risk premiums. In addition, external financial conditions have generally tightened and the fiscal space has narrowed, while risks of interest rate and exchange rate overshooting have increased. In this regard, Directors took note of the U.S. Federal Reserve’s guidance that monetary policy normalization will occur in the context of stronger U.S. growth and employment that, in turn, should be beneficial for global growth.

Directors noted that global growth is expected to improve modestly in the near term. Activity in advanced economies is accelerating as fiscal consolidation eases and monetary conditions remain accommodative. In the euro area, policy actions have reduced tail risks and stabilized financial markets, but growth remains fragile, given persistently high unemployment, financial fragmentation, and weak credit developments. Growth in emerging market economies, which continues to account for the bulk of global growth, remains driven by solid consumption and, in a historical perspective, still supportive fiscal, monetary, and financial conditions. However, lingering supply side bottlenecks in infrastructure, labor markets, and regulatory and financial systems could have lowered potential output for many of these economies. Growth in low-income countries remains robust, supported by enhanced policy frameworks, although less favorable commodity prices and external financing may weaken their fiscal positions.

Directors expressed concern that multiple vulnerabilities may have raised the risk of a prolonged period of lower global growth. They noted that important legacy risks are still present in advanced economies. These include unfinished financial sector reforms in the euro area, impaired monetary policy transmission and corporate debt overhang in some of its economies, and high levels of government debt and related fiscal and financial risks in many other advanced economies, including Japan and the United States.

Directors noted that downside risks to growth in emerging market economies have become more prominent, reflecting risks of further asset repricing in anticipation of the normalization of U.S. monetary policy as well as rising domestic vulnerabilities in some countries. Fiscal vulnerabilities are increasing as policy buffers are used, potential output declines, and public contingent liabilities build up. Nevertheless, Directors noted that, in general, these economies are in a stronger position now than in the past to withstand the looming turbulence, with improved fundamentals and policy frameworks, more flexible exchange rates, and higher international reserve buffers.

Directors underscored the need for credible policy actions to forestall downside risks and address old challenges decisively. In the euro area, priorities continue to be—building on recent progress—bank balance sheet repair, a comprehensive assessment of, and measures to reduce, corporate debt overhang in some countries, and completion of a full-fledged banking union, with an effective common backstop. Directors underscored that, while the fiscal adjustment path is currently appropriate for the euro area as a whole, the speed and composition of fiscal consolidation in each country would need to take into account cyclical considerations, debt levels, and financing conditions. In Japan and the United States, Directors emphasized the importance of carefully pacing fiscal adjustment and placing government debt on a sustainable track, anchored in a medium-term plan that includes durable tax and entitlement reforms. Promptly lifting the debt ceiling is also a priority in the United States. More generally, Directors agreed that there is scope for broader tax reforms to improve efficiency and fairness, and for strengthening cooperation on international taxation. In most advanced economies, a sustained focus on structural reforms over the medium term remains crucial to reduce rigidities in labor and product markets, enhance competitiveness, and boost potential output.

Directors agreed that monetary conditions need to stay accommodative in major advanced economies. In the United States, it is important that monetary policy respond gradually to changing prospects for growth, inflation, and financial stability, accompanied by clear, well-timed communication about the policy direction and strategy. Directors also emphasized the need to address structural liquidity weaknesses and vulnerabilities in the shadow banking system, which would help reduce financial market volatility during the transition to higher interest rates.

Directors noted that policy priorities and options differ across emerging market economies, depending on the degree of economic slack, the nature of vulnerabilities, and available policy buffers. They pointed to the role of exchange rates as a shock absorber and the need to guard against excessive volatility, while macroprudential measures should be used to mitigate financial stability risks. A few Directors took the view that exploring policy options beyond the traditional toolkit could be useful, anchored in credible monetary policy frameworks. Directors emphasized the importance of prudential oversight and regulation to contain any further buildup of foreign currency mismatches and risks stemming from shadow banking activities in key emerging markets.

Directors noted that, in emerging market economies where inflation is low and expectations are firmly anchored, monetary policy should be used as the first line of defense if downside risks materialize. They stressed the need to rebuild fiscal buffers, unless growth deteriorates significantly. In countries with high debt, fiscal consolidation remains a high priority, taking advantage of still favorable cyclical conditions. Further structural reforms are also essential to boost potential growth, including improving infrastructure, productivity, and the investment climate. Low-income countries need to step up revenue mobilization, including from natural resources, to rebuild their fiscal buffers and support higher priority public spending.

Directors concurred that a further narrowing of global imbalances would help maintain more sustainable and stable global growth. They observed that the recent exchange rate depreciations have facilitated some rebalancing in many deficit emerging market economies. However, further efforts are needed to increase national saving and boost productivity and competitiveness in many countries, including Brazil, India, Russia, and South Africa. For the United States, gradual progress on fiscal deficit reduction through a comprehensive plan for medium-term consolidation would help support global rebalancing. In surplus countries, priorities include measures to promote more consumption-based growth in China and structural reforms and medium-term fiscal consolidation in Japan. Directors were of the view that further external rebalancing within the euro area requires deeper structural reforms, including sustained efforts to raise investment in Germany.

Global Financial Stability Report Statistical Appendix, October 2013

This presentation complements the main text of the Global Financial Stability Report (GFSR) with data on financial developments in regions and countries as well as in selected sectors.

Unless otherwise noted, the data reflect information available up to July 31, 2013. The data come for the most part from sources outside the IMF. Although the IMF endeavors to use the highest quality data available, it cannot be responsible for the accuracy of information obtained from independent sources.

Please note that effective with the April 2011 issue, the IMF’s Statistics Department assumed responsibility for compiling the Financial Soundness Indicators tables, and they are no longer part of this appendix. However, these tables will continue to be linked to the GFSR Statistical Appendix on the IMF’s public website.

Effective with the April 2013 issue, the database and filtering criteria for the external private financing Tables 4, 5, 6, and 7 were changed. Consequently, there was a significant break in the data reported in previous issues.

The following symbols and conventions have been used in this appendix:

  • … to indicate that data are not available;

  • —to indicate that the figure is zero, or less than half the final digit shown, or the item does not exist;

  • – between years and months (for example, 2008–09 or January–June) to indicate the years or months covered, including the beginning and ending years or months;

  • / between years (for example, 2008/09) to indicate a fiscal or financial year.

“Billion” means a thousand million; “trillion” means a thousand billion.

“Basis points” refers to hundredths of 1 percentage point (for example, 25 basis points is equivalent to ¼ of 1 percentage point).

“n.a.” means not applicable.

Minor discrepancies between constituent figures and totals are due to rounding.

As used in this volume, the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.

Figure 1.
Figure 1.

Major Net Exporters and Importers of Capital, 2012

Source: IMF, World Economic Outlook database as of Sept. 24, 2013.1As measured by economies’ current account surplus (assuming errors and omissions are part of the capital and financial accounts).2“Other economies” includes all economies with shares of total surplus less than 3.1 percent.3As measured by economies’ current account deficit (assuming errors and omissions are part of the capital and financial accounts).4“Other economies” includes all economies with shares of total deficit less than 4.3 percent.
Figure 2.
Figure 2.

Sovereign Credit Default Swap Spreads

(Five-year tenors; basis points)

Source: Bloomberg, L.P
Figure 3.
Figure 3.

Selected Credit Default Swap Spreads

(Five-year tenors; basis points)

Sources: Bloomberg L.P.; and Datastream.Note: CEEMEA = Central and Eastern Europe, Middle East, and Africa.
Figure 4.
Figure 4.

Selected Spreads

(Basis points; monthly data)

Sources: Bloomberg, L.P.; and Bank of America Merrill Lynch.1Spread between yields on three-month U.S. Treasury repo and on three-month U.S. Treasury bill.2Spread between yields on 90-day investment-grade (financial and nonfinancial) commercial paper and on three-month U.S. Treasury bill.3Spread over 10-year government bond.
Figure 5.
Figure 5.

Implied Volatility Indices

Source: Bloomberg, L.P.Note: G7 currencies = VXY index from JPMorgan Chase & Co. and denotes G7 foreign exchange volatility. MOVE = Bank of America Merrill Lynch Option Volatility Estimate index and denotes one-month Treasury options volatility. VIX = Chicago Board Options Exchange volatility index on the Standard & Poor’s 500 and denotes equity volatility.
Figure 6.
Figure 6.

U.S. Corporate Bond Market

Sources: Board of Governors of the Federal Reserve System; and Bank of America Merrill Lynch.
Figure 7.
Figure 7.

Euro Area Corporate Bond Market

Sources: Dealogic; and Bank of America Merrill Lynch.
Figure 8.
Figure 8.

U.S. Commercial Paper Market

Source: Board of Governors of the Federal Reserve System.1Difference between 30-day A2/P2 and AA nonfinancial commercial paper.
Table 1.

Capital Market Size: Selected Indicators, 2012

(Billions of U.S. dollars, unless noted otherwise)

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Sources: World Federation of Exchanges; Bank for International Settlements (BIS); IMF, International Financial Statistics (IFS) and World Economic Outlook databases as of September 24, 2013; ©2003 Bureau van Dijk Electronic Publishing-Bankscope; Board of Governors of the Federal Reserve System, Flow of Funds; and Bloomberg, L.P.

This aggregate includes euro area countries, Denmark, Sweden, and the United Kingdom.

Data are from IFS. For euro area, the data also include the total reserves minus gold holdings of the European Central Bank.

Data are from BIS as of September 24, 2013. The data include total debt securities, all issuers, amounts outstanding by residence of issuer. BIS compilation methodology changed in December 2012. For the new data definition and classificaiton, refer to “Enhancements to the BIS debt securities statistics” publication.

Total assets of domestic commercial banks, including foreign bank’s subsidiaries operated domestically. For Austria, the data are from Austrian National Bank. For Ireland, the data are from Central Bank of Ireland. For Luxembourg, the data are from Commission de Surveillance du Secteur Financier. It comprises the assets of commercial, savings, and private banks. For Portugal, the data are from Bank of Portugal. For the United States, the data are from the Flow of Funds. It comprises the assets of private depository institutions.

Sum of the stock market capitalization, debt securities, and bank assets.

Hong Kong SAR, Korea, Singapore, and Taiwan Province of China.

This aggregate comprises the group of emerging and developing economies defined in the World Economic Outlook.

Table 2.

Morgan Stanley Capital International: Equity Market Indices

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Source: Morgan Stanley Capital International (MSCI).Note: Price indices are in local currency terms.

The country and regional classifications used in this table follow the conventions of MSCI, and do not necessarily conform to IMF country classifications or regional groupings.

Table 3.

Emerging Markets Bond Index: Global Sovereign Yield Spreads

(Basis points)

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Source: JPMorgan Chase & Co.Note: EMBI = emerging market bond index. The country and regional classifications used in this table follow the conventions of JPMorgan, and do not necessarily conform to IMF country classifications or regional groupings.
Table 4.

Emerging Market Private External Financing: Total Bonds, Equities, and Loans

(Millions of U.S. dollars)

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Source: Dealogic.Note: For inclusion criteria, please see notes for Tables 5, 6, and 7.

Georgia and Mongolia, which are not members of the Commonwealth of Independent States, are included in this group for reasons of geography and similarities in economic structure.