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International Monetary Fund. Monetary and Capital Markets Department

Abstract

Chapter 1 looks at the implications of the war in Ukraine on the financial system. Commodity prices pose challenging trade-offs for central banks. Many emerging and frontier markets are facing especially difficult conditions. In China, financial vulnerabilities remain elevated amid ongoing stress in the property sector and new COVID-19 outbreaks. Central banks should act decisively to prevent inflation from becoming entrenched without jeopardizing the recovery. Policymakers will need to confront the structural issues brought to the fore by the war, including the trade-off between energy security and climate transition. Chapter 2 discusses the sovereign-bank nexus in emerging markets. Bank holdings of domestic sovereign bonds have surged in emerging markets during the pandemic. With public debt at historically high levels and the sovereign credit outlook deteriorating, there is a risk of a negative feedback loop that could threaten macro-financial stability. Chapter 3 examines the challenges to financial stability posed by the rapid rise of risky business segments in fintech. Policies that target both fintech firms and incumbent banks proportionately are needed.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Fintech can increase efficiency and competition and broaden access to financial services. However, the fast growth of fintech firms into risky business segments—and their inadequate regulation and interconnectedness with the traditional financial system—can have financial stability implications. This chapter explores three key types of fintech to illustrate these risks: digital banks (“neobanks”), long-established fintech firms in the US mortgage market, and decentralized finance (“DeFi”). The chapter argues that policies targeting fintech and traditional financial firms proportionally are needed. In the case of DeFi, regulations should focus on the elements of the crypto ecosystem that enable it, such as stablecoin issuers and centralized exchanges.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Fintech can increase efficiency and competition and broaden access to financial services. However, the fast growth of fintech firms into risky business segments—and their inadequate regulation and interconnectedness with the traditional financial system—can have financial stability implications. This chapter explores three key types of fintech to illustrate these risks: digital banks (“neobanks”), long-established fintech firms in the US mortgage market, and decentralized finance (“DeFi”). The chapter argues that policies targeting fintech and traditional financial firms proportionally are needed. In the case of DeFi, regulations should focus on the elements of the crypto ecosystem that enable it, such as stablecoin issuers and centralized exchanges.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Fintech can increase efficiency and competition and broaden access to financial services. However, the fast growth of fintech firms into risky business segments—and their inadequate regulation and interconnectedness with the traditional financial system—can have financial stability implications. This chapter explores three key types of fintech to illustrate these risks: digital banks (“neobanks”), long-established fintech firms in the US mortgage market, and decentralized finance (“DeFi”). The chapter argues that policies targeting fintech and traditional financial firms proportionally are needed. In the case of DeFi, regulations should focus on the elements of the crypto ecosystem that enable it, such as stablecoin issuers and centralized exchanges.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Fintech can increase efficiency and competition and broaden access to financial services. However, the fast growth of fintech firms into risky business segments—and their inadequate regulation and interconnectedness with the traditional financial system—can have financial stability implications. This chapter explores three key types of fintech to illustrate these risks: digital banks (“neobanks”), long-established fintech firms in the US mortgage market, and decentralized finance (“DeFi”). The chapter argues that policies targeting fintech and traditional financial firms proportionally are needed. In the case of DeFi, regulations should focus on the elements of the crypto ecosystem that enable it, such as stablecoin issuers and centralized exchanges.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Fintech can increase efficiency and competition and broaden access to financial services. However, the fast growth of fintech firms into risky business segments—and their inadequate regulation and interconnectedness with the traditional financial system—can have financial stability implications. This chapter explores three key types of fintech to illustrate these risks: digital banks (“neobanks”), long-established fintech firms in the US mortgage market, and decentralized finance (“DeFi”). The chapter argues that policies targeting fintech and traditional financial firms proportionally are needed. In the case of DeFi, regulations should focus on the elements of the crypto ecosystem that enable it, such as stablecoin issuers and centralized exchanges.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Fintech can increase efficiency and competition and broaden access to financial services. However, the fast growth of fintech firms into risky business segments—and their inadequate regulation and interconnectedness with the traditional financial system—can have financial stability implications. This chapter explores three key types of fintech to illustrate these risks: digital banks (“neobanks”), long-established fintech firms in the US mortgage market, and decentralized finance (“DeFi”). The chapter argues that policies targeting fintech and traditional financial firms proportionally are needed. In the case of DeFi, regulations should focus on the elements of the crypto ecosystem that enable it, such as stablecoin issuers and centralized exchanges.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Financial stability risks have been contained so far, reflecting ongoing policy support and a rebound in the global economy earlier this year. Chapter 1 explains that financial conditions have eased further in net in advanced economies but changed little in emerging markets. However, the optimism that propelled markets earlier in the year has faded on growing concerns about the strength of the global recovery, and ongoing supply chain disruptions intensified inflation concerns. Signs of stretched asset valuations in some market segments persist, and pockets of vulnerabilities remain in the nonbank financial sector; recovery is uneven in the corporate sector. Chapter 2 discusses the opportunities and challenges of the crypto ecosystem. Crypto asset providers’ lack of operational or cyber resilience poses risks, and significant data gaps imperil financial integrity. Crypto assets in emerging markets may accelerate dollarization risks. Chapter 3 shows that sustainable funds can support the global transition to a green economy but must be scaled up to have a major impact. It also discusses how a disorderly transition could disrupt the broader investment fund sector in the future.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Financial stability risks have been contained so far, reflecting ongoing policy support and a rebound in the global economy earlier this year. Chapter 1 explains that financial conditions have eased further in net in advanced economies but changed little in emerging markets. However, the optimism that propelled markets earlier in the year has faded on growing concerns about the strength of the global recovery, and ongoing supply chain disruptions intensified inflation concerns. Signs of stretched asset valuations in some market segments persist, and pockets of vulnerabilities remain in the nonbank financial sector; recovery is uneven in the corporate sector. Chapter 2 discusses the opportunities and challenges of the crypto ecosystem. Crypto asset providers’ lack of operational or cyber resilience poses risks, and significant data gaps imperil financial integrity. Crypto assets in emerging markets may accelerate dollarization risks. Chapter 3 shows that sustainable funds can support the global transition to a green economy but must be scaled up to have a major impact. It also discusses how a disorderly transition could disrupt the broader investment fund sector in the future.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Financial stability risks have been contained so far, reflecting ongoing policy support and a rebound in the global economy earlier this year. Chapter 1 explains that financial conditions have eased further in net in advanced economies but changed little in emerging markets. However, the optimism that propelled markets earlier in the year has faded on growing concerns about the strength of the global recovery, and ongoing supply chain disruptions intensified inflation concerns. Signs of stretched asset valuations in some market segments persist, and pockets of vulnerabilities remain in the nonbank financial sector; recovery is uneven in the corporate sector. Chapter 2 discusses the opportunities and challenges of the crypto ecosystem. Crypto asset providers’ lack of operational or cyber resilience poses risks, and significant data gaps imperil financial integrity. Crypto assets in emerging markets may accelerate dollarization risks. Chapter 3 shows that sustainable funds can support the global transition to a green economy but must be scaled up to have a major impact. It also discusses how a disorderly transition could disrupt the broader investment fund sector in the future.