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International Monetary Fund. European Dept.

Abstract

This chapter was prepared by Kamil Dybczak, Carlos Mulas Granados, and Ezgi Ozturk with inputs from Vizhdan Boranova, Karim Foda, Keiko Honjo, Raju Huidrom, Nemanja Jovanovic and Svitlana Maslova, under the supervision of Jörg Decressin and the guidance of Gabriel Di Bella. Jaewoo Lee and Petia Topalova provided useful advice and comments. Nomelie Veluz provided administrative support. This chapter reflects data and developments as of September 28, 2020.

International Monetary Fund. European Dept.

Abstract

Christian Ebeke (co-lead), Nemanja Jovanovic, Svitlana Maslova, Francisco Parodi, Laura Valderrama (co-lead), Svetlana Vtyurina, and Jing Zhou prepared this chapter under the supervision of Mahmood Pradhan and the guidance of Laura Papi and Petia Topalova. Jörg Decressin provided useful advice and comments. Jankeesh Sandhu provided outstanding research assistance, and Nomelie Veluz was expertly in charge of administrative support.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

For the first time since the October 2008 Global Financial Stability Report, risks to global financial stability have increased (Figures 1.2 and 1.3), signaling a partial reversal in progress made over the past three years. The pace of the economic recovery has slowed, stalling progress in balance sheet repair in many advanced economies. Sovereign stress in the euro area has spilled over to banking systems, pushing up credit and market risks. Low interest rates could lead to excesses as the “search for yield” exacerbates the turn in the credit cycle, especially in emerging markets. Recent market turmoil suggests that investors are losing patience with the lack of momentum on financial repair and reform (Box 1.1). Policymakers need to accelerate actions to address longstanding financial weaknesses to ensure stability.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

The asset allocation decisions of investors are at the core of financial flows between markets, currencies, and countries. This chapter aims to identify the fundamental drivers for these decisions and determine whether their influence has been altered by the global financial crisis and the subsequent low interest rate environment in advanced economies. In particular, the chapter investigates whether changes in investor behavior pose downside risks for global financial stability.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Operationalizing macroprudential policies requires progress on a number of fronts: developing ways to monitor a risk buildup, choosing indicators to detect when risks are about to materialize, and designing and using macroprudential policy tools. Establishing these robust frameworks will be a lengthy process. Using a structural model and empirical evidence, the following analysis takes a solid step forward on each of the interrelated tasks.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

There is growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors, rather than warehousing such risk on their balance sheets, has helped to make the banking and overall financial system more resilient.1 Over the last decade, new investors have entered the credit markets, including the credit risk transfer markets. These new participants, with differing risk management and investment objectives (including other banks seeking portfolio diversification), help to mitigate and absorb shocks to the financial system, which in the past affected primarily a few systemically important financial intermediaries. The improved resilience may be seen in fewer bank failures and more consistent credit provision. Consequently, the commercial banks, a core segment of the financial system, may be less vulnerable today to credit or economic shocks. At the same time, the transition from bank-dominated to more market-based financial systems presents new challenges and vulnerabilities. These new vulnerabilities need to be understood and considered in order to form a balanced assessment of the influence of credit derivative markets.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

This paper examines the influence of credit derivative and structured credit markets on financial stability. Credit derivative and structured credit markets have grown rapidly in size and complexity in recent years. This paper reviews the growth of the credit derivative, the factors that have influenced their growth, how they have increasingly facilitated risk transfer, and their implications for financial stability. The paper also presents a discussion of policy implications and recommendations concerning these relatively new markets and related challenges.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

The events of the past six months have demonstrated the fragility of the global financial system and raised fundamental questions about the effectiveness of the response by private and public sector institutions. The report assesses the vulnerabilities that the system is facing and offers tentative conclusions and policy lessons. The report reflects information available up to March 21, 2008.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

The current report finds that, despite an improvement in economic prospects in some key advanced economies, new challenges to global financial stability have arisen. The global financial system is being buffeted by a series of changes, including lower oil prices and, in some cases, diverging growth patterns and monetary policies. Expectations for rising U.S. policy rates sparked a significant appreciation of the U.S. dollar, while long term bond yields in many advanced economies have decreased—and have turned negative for almost a third of euro area sovereign bonds—on disinflation concerns and the prospect of continued monetary accommodation. Emerging markets are caught in these global cross currents, with some oil exporters and other facing new stability challenges, while others have gained more policy space as a result of lower fuel prices and reduced inflationary pressures. The report also examines changes in international banking since the global financial crisis and finds that these changes are likely to promote more stable bank lending in host countries. Finally, the report finds that the asset management industry needs to strengthen its oversight framework to address financial stability risks from incentive problems between end-investors and portfolio managers and the risk of runs due to liquidity mismatches.