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Business and Economics > Banks and Banking

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Cover IMF Staff Country Reports
Republic of Kosovo: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper highlights recent trends in the Kosovo labor market and emigration. Like other Western Balkan countries, Kosovo experienced a sharp decline in population over the previous decade, as emigration increased. Using a structural model of the labor market and migration, the paper examines the potential impact of further EU integration. While lower migration costs hurt the economy, productivity convergence brought on by EU integration has an offsetting impact by increasing wages, lowering unemployment, and increase immigration. Policy simulations show that policymakers have a diverse set of tools—including structural reforms, active labor market policies, business support, and labor participation support—to boost potential and support the labor market. A key result from the policy simulations is that, while the policies target various stages of the labor market, they have similar macroeconomic impacts. In this regard, it is important for policymakers to focus on policies with the largest potential impact relative to the cost of implementation. Additionally, policies should be combined with careful monitoring and updating to ensure that they remain effective and efficient.
Keywords:
gender wage gap; ECB monetary policy PASSTHROUGH; EU integration; women wage; ECB policy rate Passthrough; wage gender gap; Pensions; Pension spending; Labor markets; Digitalization; Public employment; Europe; Global; Western Europe
Cover IMF Working Papers
Beyond the Dikes: Flood Scenarios for Financial Stability Risk Analysis
Caterina Lepore
and
Junghwan Mok
We assess financial stability risks from floods in the Netherlands using a comprehensive set of flood scenarios considering different factors including geographical regions, flood types, climate conditions, return periods, and adaptation. The estimated damage from each flood scenario is used to calibrate the corresponding macro-financial scenario for bank stress tests. Our results show the importance of considering these heterogeneous factors when conducting physical climate risk stress tests, as the impact of floods on bank capital varies significantly by scenario. We find that climate change amplifies the adverse impact on banks’ capital, but stronger flood defenses in the Netherlands can help mitigate some impacts. Further, we find a non-linear relationship between flood damages and banks’ capital depletion, highlighting the importance of considering extreme scenarios.
Keywords:
Physical risk; flood scenario; banking stress test; climate risk analysis; climate risk stress tests; bank capital; Natural disasters; Climate change; Commercial banks; Housing prices; Stress testing; Global
Cover IMF Staff Country Reports
ليبيا: مشاورات المادة الر ابعة لعام 2024 - البيان الصحفي، وتقرير الخبراء، وبيان المدير التنفيذي الممثل لل
International Monetary Fund. Middle East and Central Asia Dept.
لا تزال ليبيا دولة هشة عالقة في حالة من عدم اليقين السياسي. حلقات أصبح الصراع النشط أقل تواترا ، لكن البلاد لا تزال منقسمة بحكم الأمر الواقع بين الغرب والشرق ومجزأة بين الميليشيات المختلفة مع أهداف متنافسة. معوقات الاقتصاد السياسي وعدم كفاية القدرات إعاقة قدرة السلطات على تنفيذ المشورة التي يقدمها الصندوق بشأن السياسات.
Keywords:
ليبيا : مشاورات المادة الر ابعة لعام 2024 - البيان الصحفي، وتقرير الخبراء، وبيان المدير التنفيذي الممثل لليبيا
Cover IMF Staff Country Reports
Germany: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Germany
International Monetary Fund. European Dept.
The 2024 Article IV Consultation highlights that the German economy has begun to recover from the energy-price shock. Gradual economic recovery is expected to continue this year. With wage growth now exceeding inflation, private consumption is expected to drive recovery during 2024. High interest rates have boosted bank profitability, but part of this increase is likely temporary. High interest rates have exposed vulnerabilities in banks’ financing of commercial real estate activity. Risks to growth are broadly balanced, with both positive and negative surprises to consumer and investor sentiment possible. Inflation is expected to slowly fall to around 2 percent as lower wholesale energy prices continue to pass through supply chains and to end-users. Fiscal policy is tight, putting the debt-to-gross domestic product ratio on a downward path, although public investment is also relatively low. In order to stabilize labor supply, the authorities should make it easier for women to work full time. This means expanding access to reliable child- and eldercare services and exploring ways to reduce the effective marginal tax rate on second earners in married couples.
Keywords:
article IV consultation discussion; supervisory authority; currency of Germany; energy-price shock; state's ability; Inflation; Labor markets; Public investment spending; Commercial banks; Global
Cover IMF Staff Country Reports
Libya: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Libya
International Monetary Fund. Middle East and Central Asia Dept.
The 2024 Article IV Consultation highlights that Libya remains a fragile state trapped in political uncertainty, but the episodes of active conflict have become less frequent. The outlook continues to be dominated by the dynamics of hydrocarbon production. Libya needs to manage public expenditure consistent with its macroeconomic constraints, and requires proper budgeting to avoid procyclical spending, and improve coordination between fiscal and monetary policies. Completing the central bank reunification remains key to maintaining financial stability, along with reforms on strengthening monetary policy and updates to the banking supervision framework. The baseline projection is for declining fiscal and external balances over the coming years, in line with a projected decline in global oil prices. The Central Bank of Libya is expected to maintain the current stock of international reserves, and the country will continue to have no public debt as conventionally understood. However, the balance of risks is tilted to the downside, and uncertainty remains high due to the continuing political stalemate and possible geopolitical spillovers.
Keywords:
clearance certificate; balance of payments reason; METAC mission; certificate of payment; staff's assessment; Exchange rates; Exchange restrictions; Anti-money laundering and combating the financing of terrorism (AML/CFT); Global; Africa
Cover IMF Staff Country Reports
Luxembourg: Financial Sector Assessment Program—Technical Note on Stress Testing and Systemic Risk Analysis
International Monetary Fund. Monetary and Capital Markets Department
This paper focuses on a technical note on Stress Testing and Systemic Risk Analysis for the Luxembourg Financial Sector Assessment Program. The Luxembourg financial system is highly interconnected, diverse and complex. It has displayed a high level of resilience in the past but currently faces a backdrop of heightened economic, financial, and geopolitical uncertainty. The banking, insurance and investment fund sector stress tests were integrated in a number of ways, and included key external and domestic risks. Under the adverse scenario, the banking system would experience a significant decline in the system-wide capital ratio but would still be very well capitalized, thanks to healthy initial positions. The majority of banks would be able to sustain bank runs akin to those experienced in the US and Switzerland in March 2023, but some need attention. Despite resilience taken together, the assessment of banking sector vulnerabilities points to several areas where the authorities could prioritize supervisory attention. The increasing share of alternative investment funds and the higher interlinkages both within the investment fund sector and with the rest of the financial sector call for vigilance.
Keywords:
bank solvency stress; insurance solvency stress test; solvency impact; banking sector solvency stress test result; bank Liquidity-Solvency interaction; alternative investment; Stress testing; Mutual funds; Insurance companies; Commercial banks; Global; Europe
Cover IMF Staff Country Reports
Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Climate Risk Analysis
International Monetary Fund. Monetary and Capital Markets Department
This paper presents a technical note on climate risk analysis in The Netherlands. The Netherlands is exposed to both physical and transition risks from climate change. This Financial Sector Assessment Program FSAP analyzed potential risks to financial stability posed by physical risks from floods and transition risks from nitrogen. In order to assess physical climate risks, bank stress tests were conducted against flood events under a range of scenarios encompassing diverse regions, climate conditions, and flood protection reinforcement plans with different return periods. Despite the sizeable land area in the Netherlands susceptible to flooding, the physical climate stress test has demonstrated that the banking sector exhibits resilience to flood events. As the government’s efforts to reduce nitrogen depositions continue, the banking sector could face transition risks through the credit channel, particularly if loans are extended to financially vulnerable firms in high nitrogen-emitting sectors. The Dutch government should strengthen data sharing and collaboration with floods and climate experts. Flood scenarios designed with detailed flood maps under future climate conditions would provide a more accurate assessment of both climate change impact and adaptation measures.
Keywords:
risk analysis; statistics Netherlands; flood scenario design scheme; types classification; B. flood scenario; nitrogen emission intensity; Natural disasters; Climate change; Insurance companies; Commercial banks; Global
Cover IMF Working Papers
Monetary Policy with Uncertain Inflation Persistence
Luis Brandão-Marques
,
Roland Meeks
, and
Vina Nguyen
When uncertain about inflation persistence, central banks are well-advised to adopt a robust strategy when setting interest rates. This robust approach, characterized by a "better safe than sorry" philosophy, entails incurring a modest cost to safeguard against a protracted period of deviating inflation. Applied to the post-pandemic period of exceptional uncertainty and elevated inflation, this strategy would have called for a tightening bias. Specifically, a high level of uncertainty surrounding wage, profit, and price dynamics requires a more front-loaded increase in interest rates compared to a baseline scenario which the policymaker fully understands how shocks to those variables are transmitted to inflation and output. This paper provides empirical evidence of such uncertainty and estimates a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model for the euro area to derive a robust interest rate path for the ECB which serves to illustrate the case for insuring against inflation turning out to have greater persistence.
Keywords:
Robust policy; monetary policy; uncertainty; inflation persistence; wage and price dynamics.; Monetary Policy stance; policy rule parameter; price Persistence; IMF working paper 2024/47; inflation expectation; Inflation; Central bank policy rate; Output gap; Wages; Europe; Central and Eastern Europe; Eastern Europe
Cover IMF Working Papers
Macro-Prudential Stress Test Models: A Survey
David Aikman
,
Daniel Beale
,
Adam Brinley-Codd
,
Anne-Caroline Hüser
,
Giovanni Covi
, and
Caterina Lepore
In this paper, we survey the rapidly developing literature on macroprudential stress-testing models. The scope of the survey includes models of contagion between banks, models of contagion within the wider financial system including non-bank financial institutions such as investment funds, and models that emphasise the two-way interaction between the financial sector and the real economy. Our aim is two-fold: first, to provide a reference guide of the state-of-the-art for those developing such models; second, to distil insights from this endeavour for policy-makers using these models. In our view, the modelling frontier faces three main challenges: (a) our understanding of the potential for amplification in sectors of the non-bank financial system during periods of stress, (b) multi-sectoral models of the non-bank financial system to analyse the behaviour of the overall demand and supply of liquidity under stress and (c) stress testing models that incorporate comprehensive two-way interactions between the financial system and the real economy. Emerging lessons for policy-makers are that, for a given-sized shock hitting the system, its eventual impact will depend on (a) the size of financial institutions' capital and liquidity buffers, (b) the liquidation strategies financial institutions adopt when they need to raise cash, and (c) the topology of the financial network.
Keywords:
Stress testing; system-wide models; contagion; systemic risk; market-based finance; real-financial linkages; macro-prudential policy.; bank resilience channel; modelling frontier; bank financial system; models of contagion; variation margin; Asset liquidity; Commercial banks; Liquidity; Solvency; Global
Cover IMF Staff Country Reports
Euro Area Policies: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper highlights quantitative tightening (QT) by the European Central Bank (ECB). It uses evidence from the literature on the impact of central bank bond purchases and sales on bond yields, and the monetary policy stance, to outline a roadmap for reducing the Euro system’s bond holdings. The current tightening cycle provides an opportunity to revisit the ECB’s balance sheet policy. With inflation running above target, the monetary accommodation provided by the ECB’s bond holding is no longer necessary. The current tightening cycle provides an opportunity to revisit the ECB’s balance sheet policy. With inflation running above target, the monetary accommodation provided by the ECB’s bond holding is no longer necessary. The paper concludes that the ECB’s short term policy rates should be the main choice for adapting the monetary policy stance to changing circumstances and QT should proceed in a gradual, predictable manner as outlined by the ECB.
Keywords:
ECB Policy rate; ECB balance sheet; app portfolio; C. Policy consideration; bond supply net of ECB; Financial statements; Unconventional monetary policies; Central bank policy rate; Monetary stance; Securities