Browse

You are looking at 1 - 10 of 29 items for :

  • Global Financial Stability Report x
Clear All
International Monetary Fund. Monetary and Capital Markets Department

Abstract

The global financial system has yet again gathered strength and resilience. As before, this trend has been fueled by continued balance sheet improvements in the financial and corporate sectors in most countries. The continuing global economic expansion, together with determined efforts to restructure and cut costs, has enabled many financial institutions and corporations to generate substantial, or even record, profits over the past three years. As a result, their balance sheets have strengthened to the extent that the financial and corporate sectors can absorb a significant degree of financial shock before coming under systemic stress. With global growth most likely to continue, inflation under control, and financial markets generally benign, we expect the resilience of the global financial system to improve even further. This improvement provides an important cushion in the event that any of the more medium-term risks discussed below were to materialize. This cushion against risks and vulnerabilities in the medium term may have expanded, but risks have not disappeared altogether.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Over the past six months, the global financial system, especially the health of financial intermediaries, has been further strengthened by the broadening economic recovery. The financial system has not looked as resilient as it does in the summer of 2004, in the three years since the bursting of the equity bubble. Financial intermediaries, banks and nonbanks alike, have strengthened their balance sheets to a point where they could, if necessary, absorb considerable shocks (see Chapter II, pages 64-73). While it is obviously feasible that one or the other financial institution, such as a hedge fund or even a bank, might succumb to serious mistakes in risk management or to outright fraud, such incidents should be isolated cases with limited, if any, contagion to the system as a whole. Short of a major and devastating geopolitical incident or a terrorist attack undermining, in a significant and lasting way, consumer confidence, and hence financial asset valuations, it is hard to see where systemic threats could come from in the short term. This positive assessment is focused on the financial sector, given its potential to create fast-moving knock-on effects through the wholesale markets. The household sector, in turn, could face certain financial problems going forward, despite its improved balance sheet position. However, from a systemic point of view, the household sector is the ultimate shock absorber.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Global financial vulnerabilities have subsided further since the September 2003 Global Financial Stability Report (GFSR). International financial markets have continued to improve, strengthening the balance sheets of financial institutions and other market participants. At present, financial markets seem to be enjoying a “sweet spot:” economic activity and corporate earnings have made a strong recovery, most noticeably in the United States but also in other parts of the world. At the same time, inflation remains quiescent, enabling the monetary authorities to maintain very low policy interest rates.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

In the April 2005 Global Financial Stability Report (GFSR), we noted that financial conditions were quite positive, leading risks to be skewed on the down side. Financial market developments since then have reduced risks somewhat, at least for the near term. However, the same forces that have supported buoyant financial markets have also created larger global imbalances and higher levels of debt, thus storing up potential vulnerabilities for the future.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Exceptionally low short-term interest rates in the major financial centers contributed to resurgent economic growth and rising corporate earnings and to progress in strengthening corporate balance sheets, thus improving the fundamental economic outlook.1 Policies pursued to stimulate economic growth also created powerful incentives for investors to venture further out along the risk spectrum and contributed to a recovery of asset valuations.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Financial markets are adjusting with equanimity to the onset of the interest rate tightening cycle. The well-crafted communications strategy of the U.S. Federal Reserve Board prepared markets fully for the first measured rise in U.S. policy rates in June 2004. The backdrop of resurgent and broad-based economic growth, rising corporate earnings, and stronger corporate balance sheets have helped support equity and corporate bond prices, notwithstanding the prospect of further interest rate increases. Limited inflationary pressure to date has moderated expectations for the pace and degree of tightening in the United States and Europe. Market participants are now focused on the sustainability of the recovery, and its impact on interest rates and asset valuations.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

The factors that determine changes in asset allocation and, hence, capital flows across national borders and sectors have important implications for the conduct of surveillance of global financial markets. The fast growing importance of institutional investors, mostly in mature markets but increasingly in a number of emerging market economies, has two major consequences that are closely interrelated. On the one hand, these nonbank asset gatherers assume sizable market and credit risks, not the least through modern financial engineering, in the form of swaps, derivatives, and so on. Previous issues of the Global Financial Stability Report (GFSR) have examined the driving forces behind that development, potential vulnerabilities, and policies that could mitigate adverse consequences. On the other hand, institutional investors are not only exposed to market and credit risks emanating from financial markets, but their investment decisions increasingly “make markets.”

International Monetary Fund. Monetary and Capital Markets Department

Abstract

This is the third and final installment of a series of chapters in the Global Financial Stability Report (GFSR) discussing the transfer, reallocation, and management of financial risk. Throughout this series we have highlighted the flow and reallocation of risks throughout the financial system, and the ability of certain market participants to manage new types of risks. Traditional assessments of financial stability tend to concentrate on the condition or resiliency of systemically important institutions, most often banks. In this series, we have expanded the analysis and highlighted the changing flow of risks among market participants, often as a result of policies or standards intended to improve the ability to manage, monitor, or measure risks in a particular sector. However, such policies and standards frequently redirect the flow of risk to less-monitored or less-measured sectors, such as the household sector. As such, the question arises whether, as a result of these policies, the financial system as a whole has become or is becoming more stable, or whether new risks and sources of instability may be emerging.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

As financial markets develop, a variety of nonbank institutions, such as insurers, pension funds, mutual funds, and hedge funds, have been increasing their exposure to market and credit risks. This chapter is the second in a series on the financial stability implications of this reallocation and transfer of risk, following the chapter, “Risk Transfer and the Insurance Industry,” in the April 2004 GFSR. This chapter focuses on pension funds, as significant institutional investors.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

As financial markets develop, a variety of nonbank institutions, such as insurers, pension funds, mutual funds, and hedge funds, have been increasing their exposure to market and credit risks. This chapter is the second in a series on the financial stability implications of this reallocation and transfer of risk, following the chapter, “Risk Transfer and the Insurance Industry,” in the April 2004 GFSR. This chapter focuses on pension funds, as significant institutional investors.