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International Monetary Fund. Monetary and Capital Markets Department

Abstract

The year 2001 has yet again demonstrated how resilient the international financial system was in the face of a number of serious challenges. In chronological order, the past year saw the continuing deflation of the telecom, media, and technology (TMT) bubble across global markets, the onset of a recession in the United States amid a synchronized global slowdown, a financial crisis in Turkey, the terrorist attacks on September 1 1, the record number of bankruptcies, and the default by Argentina after a long and drawn-out crisis. Throughout these events, several of which represented serious problems requiring prompt attention by the appropriate authorities, the international financial system has shown remarkable resilience. This capacity to absorb shocks has been bolstered by the robustness of the infrastructure of the financial system and the key players in it; the vigilance and ready action of the financial and monetary authorities to ensure the smooth functioning of the system, including through the timely provision of liquidity support; and the increasingly discriminating investment behavior of market participants. Going forward, this resilience would again be tested if a global economic recovery is subdued. However, the starting conditions this year would be weaker than those at the beginning of 2001.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

changing perceptions of the economic slowdown and the prospects for recovery dominated global market developments during the fourth quarter of last year, and continue to do so in 2002. Markets had reacted strongly to the events of September 11, before staging a sharp rally from the beginning of the quarter as global risk aversion subsided (see Figure 2.1).1 The heightened market uncertainty associated with the events surrounding September 11 initially translated into high levels of risk aversion at the beginning of the fourth quarter. Measures of risk aversion steadily dissipated during October and November, with a consensus emerging that, in hindsight, financial markets overreacted to the potential impacts of the September 11 events. The subsequent rally, in conjunction with a strong revision of views on economic recovery and its strength and scope, was also influenced by several technical factors and ample liquidity on the part of investors.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

As mentioned in Chapter I, during 2001 the international financial system has shown remarkable resilience in the face of sizable disruptions. Moreover, recent economic data seem to support market expectations that the global economy will recover soon. Nevertheless, for the purpose of identifying vulnerabilities in international financial markets, this chapter considers the risks to international financial stability that could be associated with the potential financial fallout of several financial imbalances, which could be exacerbated by a subdued recovery. In light of accumulated financial imbalances that have not yet been worked off, the main uncertainties would seem to be associated with the resilience of household, corporate, and bank (and nonbank financial institution) balance sheets in the presence of the renewed declines in equity prices and deterioration in credit quality that might occur during a weaker-than-expected global recovery. If balance sheets are impaired and financial imbalances are aggravated as a result of such asset price adjustments during the recession, this could itself lead to a subdued recovery and could possibly delay it, which in turn could feed back to a further deterioration in financial conditions (and so on). This would lead to a less friendly operating environment for financial institutions, especially for those already weakened by the events of 2001, and to possible stress within the international financial system.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

The Mexican (1994-95) and Asian (1997-98) crises stimulated a variety of empirical studies designed to identify both the causes of these crises and the determinants of the associated spillover effects (Kaminsky and Reinhart, 2000). To the extent that past crises can yield useful lessons about factors that contribute to a country's vulnerability to future crises, scholars and policymakers quickly realized that these empirical studies could be one element in a forwar-looking early warning system (EWS). As a result, a growing number of international financial institutions (IFIs) and central banks are using EWS models in their surveillance activities. Similarly, several investment banks have developed in-house EWS models aimed at providing foreign exchange trading advice to their clients and complementing their economic analysis of emerging markets.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Over the past several years, emerging market borrowers have used a number of debt instruments, many of which embody innovative features, to maintain access to global capital markets and better manage their debt through risk diversification. While emerging market borrowers are quite likely to make use of alternative debt instruments1 at times of relative tranquility, the need for their use may increase at times of market turbulence or financial stress, when investor appetite for emerging market debt diminishes and costs of borrowing rise. In these circumstances, emerging market countries must maintain sound economic policies, both to signal their commitment to economic reform and adjustment and/or to differentiate themselves from the countries in crisis and limit the potential damage from contagion. Notwithstanding the adoption of those policies, to meet their financing needs and maintain access to capital markets, sovereigns could face the daunting task of issuing debt that on the one hand appeals to investors, but that on the other avoids locking themselves into high debt-service costs for prolonged periods of time and creating inflexible debt structures that could exacerbate future crises and have implications for financial stability, more generally.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Financial stability has continued to improve since the October 2016 Global Financial Stability Report (GFSR). Economic activity has gained momentum, as outlined in the April 2017 World Economic Outlook (WEO), amid broadly accommodative monetary and financial conditions, spurring hopes for reflation. Chapter 2 analyzes the potential long-term impact of a scenario of sustained low growth and low real and nominal rates for the business models of financial institutions and the products offered by the financial sector. Chapter 3 examines whether countries still retain influence over their domestic financial conditions in a globally integrated financial system. The chapter develops financial conditions indices that make it possible to compare a large set of advanced and emerging market economies.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

This March 2002 issue of the Global Financial Stability Report highlights that financial markets ended the year 2001 on a positive note. Equity markets recovered and rallied noticeably from their lows of late September. In bond markets, yield spreads of corporate and high-yielding bonds, particularly emerging market bonds, narrowed against the U.S. Treasury. At the same time, the U.S. Treasury yield curve steepened, and the U.S. dollar has strengthened. Financial markets thus anticipate, and have priced in, a recovery in economic activity and corporate earnings during 2002.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

The October 2012 Global Financial Stability Report (GFSR) finds increased risks to the global financial system, with the euro area crisis the principal source of concern, and urges policymakers to act now to restore confidence, reverse capital flight, and reintegrate the euro zone. This GFSR presents a report on whether regulatory reforms are moving the financial system in the right direction, and finds that progress has been limited, partly because many reforms are in the early stages of implementation and partly because crisis intervention methods are still in use in a number of economies, delaying the movement of the financial system onto a safer path. The final chapter examines whether certain aspects of financial structure enhance economic outcomes. Indeed, some structural features are associated with better outcomes. In particular, financial buffers made up of high-quality capital and truly liquid assets tend to be associated with better economic performance.

International Monetary Fund. Monetary and Financial Systems Dept.

Abstract

The October 2017 Global Financial Stability Report finds that the global financial system continues to strengthen in response to extraordinary policy support, regulatory enhancements, and the cyclical upturn in growth. It also includes a chapter that examines the short- and medium-term implications for economic growth and financial stability of the past decades’ rise in household debt. It documents large differences in household debt-to-GDP ratios across countries but a common increasing trajectory that was moderated but not reversed by the global financial crisis. Another chapter develops a new macroeconomic measure of financial stability by linking financial conditions to the probability distribution of future GDP growth and applies it to a set of 20 major advanced and emerging market economies. The chapter shows that changes in financial conditions shift the whole distribution of future GDP growth.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

In the 10 years since the global financial crisis, regulatory frameworks have been enhanced and the banking system has become stronger, but new vulnerabilities have emerged, and the resilience of the global financial system has yet to be tested.