Browse

You are looking at 1 - 10 of 14 items for :

  • World Economic and Financial Surveys x
  • Financial regulation and supervision x
Clear All
International Monetary Fund

Abstract

Turbulence in world financial markets in recent months has raised questions about certain features of financial systems in the mature economies and has heightened uncertainty about global economic prospects. The crisis in Russia in mid-August, coming in the wake of the Asian crisis, led to a drying up of private financial flows to emerging markets, a broader increase in risk aversion among financial investors, and concerns about a global credit crunch. As a result, through early October fears escalated that the current economic slowdown might continue to widen and deepen in 1999. Partly in response, monetary policies have been eased throughout the industrial countries and in some emerging market economies. Together with several other positive developments, the easing of monetary conditions has helped to restore calm in financial markets. But while the danger of a global recession does seem to have diminished, the supply of funds to most emerging market economies is still sharply reduced, and conditions in financial markets remain fragile in several respects. It would therefore be premature to consider the difficulties to be over. The IMF staff’s projections for world growth in 1999 have been revised further downward—but not substantially, and by much less than in the two preceding issues of the World Economic Outlook. The risks appear to remain predominantly on the downside, however.

Mr. Carl-Johan Lindgren and Mr. D. F. I. Folkerts-Landau

Abstract

It is now well recognized that vulnerable and unstable banking systems can severely disrupt macro-economic performance in industrial, developing, and transition economies alike.1 The widespread incidence and the high cost of banking problems have prompted calls for concerted international action to promote the soundness and stability of banking systems. At the Lyon Summit in June 1996, the Group of Seven (G-7) industrial countries called for “the adoption of strong prudential standards in emerging market economies,” and encouraged the international financial institutions to “increase their efforts to promote effective supervisory structures in these economies.”2 These intentions were reinforced by the IMF Interim Committee’s “Partnership for Sustainable Global Growth” in September 1996 (see IMF, 1996). In Denver, in June 1997, the G-7 Ministers of Finance meeting considered a report by a Group of Ten (G-10) working party on financial stability in emerging market economies (G-10, 1997) and requested “the IMF and the World Bank to report to Finance Ministers next April on their efforts to strengthen the roles they play in encouraging emerging market economies to adopt the principles and guidelines identified by the supervisory community” (G-7, 1997). The G-7 Heads of Government then called “on the international financial institutions and the international regulatory bodies to fulfill their roles in assisting emerging market economies in strengthening their financial systems and prudential standards.” The Heads of Government also welcomed “the IMF’s progress in strengthening surveillance and promoting improved transparency. Increased attention to financial sector problems that could have significant macroeconomic implications, and to promoting good governance and transparency, will help prevent financial crises” (G-7, 1997).

Mr. Carl-Johan Lindgren and Mr. D. F. I. Folkerts-Landau

Abstract

The thrust of policy efforts to strengthen financial sector performance has to originate with national authorities. But the Fund and the international community at large have an important stake in the success of these efforts, because banking crises have macroeconomic consequences and may generate significant regional and international spillovers. As more countries remove remaining restrictions on their capital account transactions, and as banking and finance assumes a more regional and international dimension, the cross-border impact of banking system problems can be expected to increase as well. These considerations have motivated broad international interest in contributing to the effort to achieve greater stability in banking and financial systems around the world, culminating in the statement by G-7 Heads of Government in Denver. The Fund’s efforts to support the initiatives of many of its members to strengthen their financial system policies through its surveillance, lending, and technical assistance activities should be seen as part of this larger international effort now under way, and the Fund’s work will have to be in concert with the endeavors of this broader international initiative.

International Monetary Fund

Abstract

The financial market turmoil first evident in Asia in the summer of 1997 intensified sharply following Russia’s decision on August 17, 1998 to devalue the ruble and impose a forced restructuring of domestic government debt. This development and to a lesser extent Malaysia’s decision to impose capital controls, which followed shortly thereafter, were defining events that led both to a dramatic reassessment of the credit, market, and transfer risks associated with holding emerging market financial instruments, and to a general decline in risk tolerance among mature market investors. In part, the dramatic response of investors to Russia’s actions reflected a reassessment of their earlier view that Russia was “too big to fail.” In addition, some highly leveraged institutions that have been important investors in emerging market securities suffered large losses as a result of the Russian debt restructuring and faced higher margin calls. A relatively indiscriminate sell-off in emerging market securities ensued, which led to a sharp widening of secondary market interest rate spreads and a virtual cessation of financial flows to many emerging markets. Investor concerns that a sustained period of illiquidity could adversely affect emerging market economies with large domestic and external refinancing needs led to substantial capital outflows and sustained pressures on foreign exchange and domestic money markets in a number of countries, particularly in Latin America.1

Mr. Carl-Johan Lindgren and Mr. D. F. I. Folkerts-Landau

Abstract

While not the subject of this paper, it must always be remembered that an unstable macroeconomic environment is a principal source of vulnerability in the financial system. Significant swings in the performance of the real economy, and volatile interest rates, exchange rates, asset prices, and inflation rates make it difficult for banks to assess accurately the credit and market risks they incur. Moreover, banks in many developing and transition economies have limited scope to diversify these risks as much as is possible in industrial economies. Large and volatile international capital flows often add to the challenges faced by banks in these countries. While Fund surveillance will seek to improve the macroeconomic framework, a structural framework for sound banking should also attempt to ensure that the macroeconomic risks are adequately reflected in prudential restraints and structural policies.

International Monetary Fund

Abstract

Until July 1998, the mature financial markets in the United States and Europe remained buoyant, largely avoiding significant negative spillovers from the Asian crisis despite some episodes of increased volatility, most notably in October 1997.1 Government bond yields continued to decline, while equity prices recorded further strong gains, especially in continental Europe, where markets surged in a number of countries by 45–65 percent over end-1997 levels. Favorable economic developments, including very subdued inflation, solid domestic demand growth in most countries, and increased confidence in a successful launch of EMU contributed to this market buoyancy.2 In addition, the mature financial markets were boosted by a “flight to quality” as investors shifted funds away from Asia and other emerging markets. Despite these generally favorable developments, however, there were some signs of a weakening in sentiment in the months leading up to July 1998. Major stock market indices in the United States and the United Kingdom continued to advance, but the gains were increasingly narrowly based, and market indices for “small cap” stocks began to weaken. Also, yield spreads on below-investment-grade bonds in the United States widened by about 90 basis points from their historic lows reached in mid-1997 prior to the Asian crisis.3 Elsewhere, equity markets and the exchange rate weakened further in Japan, where domestic economic conditions continued to worsen, and also came under downward pressure in countries with strong trade links to Asia or heavy reliance on commodity exports (notably, Canada, Australia, New Zealand, and Norway).

International Monetary Fund

Abstract

Global growth in 1999 seems likely to be in the range of 2–2¼ percent for the second consecutive year, well below the historical average of nearly 4 percent. This underscores the continuing costs of the Asian crisis, its repercussions, and the crises that have afflicted financial markets more broadly in 1998. However, the most serious downside risks to the global economy that emerged as a result of the turbulence in global financial markets in the wake of the Russian crisis in August now seem to have subsided, and the relatively modest scale of the further downward revisions to the global growth outlook since early September suggests that the situation may have begun to stabilize. At the same time, the balance of risks still seems to be predominantly on the downside. The consequences of some of these risks materializing are explored in an alternative scenario below.

Mr. Carl-Johan Lindgren and Mr. D. F. I. Folkerts-Landau

Abstract

This chapter first discusses issues relating to the quality of financial data and difficulties in valuing bank assets. It then examines the types of information required by the various users of data describing the financial condition of banks. The adoption of internationally accepted accounting standards,30 including the principles of accrual and consolidation, would facilitate the production of high-quality data. In addition, detailed rules governing the valuation of bank assets and the treatment of income and expenditure are often desirable. A by-product of good-quality banking data is a more reliable input to the determination of macroeconomic policy, but that subject is beyond the ambit of this paper. However, to the extent possible, coordination with compilers of monetary statistics will help reduce the burden on reporting entities. The focus here will be on the information needs of two types of recipients with an interest in bank soundness, supervisors, and the public.

Mr. Carl-Johan Lindgren and Mr. D. F. I. Folkerts-Landau

Abstract

This study outlines the broad principles and characteristics of stable and sound financial systems, to facilitate IMF sruveillance over banking sector issues of macroeconomic significance and to contribute the general international effort to reduce the likelihood and diminish the intensity of future financial sector crises.

Mr. Carl-Johan Lindgren and Mr. D. F. I. Folkerts-Landau

Abstract

In almost all countries, financial safety nets are considered an integral part of the financial infrastructure and are seen as necessary for promoting the stability of financial systems by enhancing confidence in the banking system. Most financial safety nets have two key elements, namely, a lender of last resort, usually the central bank, and a deposit insurance scheme.66