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International Monetary Fund. Monetary and Capital Markets Department

Abstract

Global financial stability has improved since the October 2012 report. Policy actions have eased monetary and financial conditions and reduced tail risks, leading to a sharp increase in risk appetite and a rally in asset prices. But if progress on addressing medium-term challenges falters, the rally in financial markets may prove unsustainable, risks could reappear, and the global financial crisis could morph into a more chronic phase.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

The debate about the usefulness of sovereign credit default swaps (SCDS) intensified with the outbreak of sovereign debt stress in the euro area. SCDS can be used to protect investors against losses on sovereign debt arising from so-called credit events such as default or debt restructuring. SCDS have become important tools in the management of credit risk, and the premiums paid for the protection offered by SCDS are commonly used as market indicators of credit risk. Although CDS that reference sovereign credits are only a small part of the sovereign debt market ($3 trillion notional SCDS outstanding at end-June 2012, compared with $50 trillion of total government debt outstanding at end-2011), their importance has been growing rapidly since 2008, especially in advanced economies.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Major central banks have taken unprecedented policy actions following the financial crisis. In addition to keeping interest rates low for a prolonged period, they have taken a host of unconventional measures, including long-term liquidity provision to banks in support of lending, as well as asset purchases to lower long-term interest rates and to stabilize specific markets, such as those for mortgages.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

Previous issues of the Global Financial Stability Report (GFSR) have analyzed and assessed how the global financial system recovered from various shocks, including the bursting of the equity bubble in 2000–01 and the debt crises in a few emerging market (EM) countries. They spelled out in detail how cyclically favorable conditions and structural changes have made financial intermediaries much stronger. The positive assessment contained in the September 2005 GFSR that “the global financial system has yet again gathered strength and resilience” has been validated by recent developments. However, a number of cyclical challenges appear to be gathering on the horizon, which necessitate a more nuanced view of the financial outlook for the remainder of 2006 and beyond.

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

Several factors have contributed to the recent increased demand for emerging market (EM) sovereign debt. Cyclical developments such as the low mature market (MM) interest rates and favorable global liquidity conditions, as discussed in Chapter I, have led to a search for yield, including in the emerging market asset class. In the last five years, many EM countries have made impressive improvements in macroeconomic fundamentals and carried out structural reforms. Some have also benefited handsomely from rising commodity prices. In addition, many EM countries have improved their debt management capability. These factors have led to a sustained and significant upgrading of the EM sovereign debt class, about half of which is now investment grade. The low yields in MM assets coupled with improved quality and performance of EM assets have led to a significant increase of MM investor interest in EM assets. As discussed in earlier issues of the GFSR, relatively small changes in the asset allocation of large global investors can significantly affect EM funding costs. Several EMs have proactively taken advantage of this benign environment to lock in longer-term funding, improve debt structures, and develop local currency markets. Overall, emerging debt markets have been resilient to recent fluctuations in mature financial markets.

International Monetary Fund

This Selected Issues paper uses contingent claims analysis (CCA) to assess risks to the Colombian banking sector. The CCA approach is based on the estimation of the default probability by an entity on its obligations, and is widely used by rating agencies to assess creditworthiness in the corporate sector. The paper also estimates the effects of changes in selected macroeconomic and financial variables on default probabilities for a sample of Colombian banks. The sample includes five banks for which market-based default probabilities are available.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

This semi-annual publication from the IMF provides comprehensive coverage of mature and emerging financial markets and seeks to identify potential fault lines in the global financial system that could lead to crises. It is designed to deepen understanding of global capital flows, which play a critical role as an engine of world economic growth.

International Monetary Fund. Monetary and Capital Markets Department

Abstract

The Global Financial Stability Report examines current risks facing the global financial system and policy actions that may mitigate these. It analyzes the key challenges facing financial and nonfinancial firms as they continue to repair their balance sheets. Chapter 2 takes a closer look at whether sovereign credit default swaps markets are good indicators of sovereign credit risk. Chapter 3 examines unconventional monetary policy in some depth, including the policies pursued by the Federal Reserve, the Bank of England, the Bank of Japan, the European Central Bank, and the U.S. Federal Reserve.

International Monetary Fund. Secretary's Department

Abstract

To the Board of Governors of the International Monetary Fund