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Abstract
Despite ongoing economic recovery and improvements in global financial stability, structural weaknesses and vulnerabilities remain in some important financial systems. The April 2011 Global Financial Stability Report highlights how risks have changed over the past six months, traces the sources and channels of financial distress with an emphasis on sovereign risk, notes the pressures arising from capital inflows in emerging economies, and discusses policy proposals under consideration to mend the global financial system.
Abstract
Risks to global financial stability have declined since the October 2010 Global Financial Stability Report, helped in part by improving macroeconomic conditions. However, sovereign balance sheets remain under strain in many advanced economies, structural weaknesses and vulnerabilities in the euro area pose significant risks to bank balance sheets, credit risks remain high, and capital inflows to emerging markets could strain their absorptive capacity.
Abstract
The financial crisis highlighted the lack of sound liquidity risk management at financial institutions and the need to address systemic liquidity risk—the risk that multiple institutions may face simultaneous difficulties in rolling over their short-term debts or in obtaining new short-term funding through widespread dislocations of money and capital markets. Under Basel III, individual banks will have to maintain higher and better-quality liquid assets and to better manage their liquidity risk. However, because they target only individual banks, the Basel III liquidity rules can play only a limited role in addressing systemic liquidity risk concerns. Larger liquidity buffers at each bank should lower the risk that multiple institutions will simultaneously face liquidity shortfalls; but the Basel III rules do not address the additional risk of such simultaneous shortfalls arising out of the interconnectedness of various institutions across a host of financial markets. More needs to be done to develop macroprudential techniques to measure and mitigate systemic liquidity risks.
Abstract
Housing market booms followed by busts have been associated with financial instability and significant costs to the economy in many countries over the years, reflecting the importance of the housing sector. Still, the degree to which such house price boom-bust episodes have led to more widespread financial instability differs between countries, in part because of important differences in countries’ housing finance systems, including the role of government. This chapter analyzes housing finance systems in a number of representative advanced and emerging economies in order to identify factors that enhance the stability of housing finance systems and financial stability more generally. In particular, it examines aspects of housing finance systems in some advanced economies that contributed to financial instability in the recent crisis.