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Business and Economics > Banks and Banking

You are looking at 1 - 10 of 858 items for :

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  • Financial Crises x
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Cover IMF Working Papers
Sandcastles and Financial Systems: A Sandpile Metaphor
Francesco Luna
and
Luisa Zanforlin
Social welfare costs from bank resolution, including contagion and moral hazard, are often thought to be minimized when supervisors can direct the merger of a failing bank with a sound, healthy one. However, social losses may become even larger if the absorbing institutions fail themselves. We ask whether social welfare losses are indeed lower when supervisors intervene rather than not. We use the sand pile/Abelian model as a metaphor to model financial losses which, as sand grains that fall onto a pile, eventually lead to a slide/failure. When capital in the system is insufficient to absorb the failing institution there will be welfare losses. Results suggest that, over the longer-term, social costs are lower when supervisors manage mergers. Additionally, financial networks that have a structure that minimizes social losses also minimize crises frequency. However, the bank employed resolution strategy will determine which financial network structures are associated with the minimum average loss per bankruptcy event.
Keywords:
Applied Abelian model; Banking; Financial Networks; Financial Economics; Banking Crisis; Bankrupcy; Bank Resolution; Selforganized Criticality; Bank Regulation and Supervision; welfare loss; resolution strategy; loss distribution; bank resolution regime supervisor; banks fail; shareholder bank; Distressed institutions; Commercial banks; Crisis resolution; Global
Cover Policy Papers
Considerations for the Comprehensive Review of Access Limits
International Monetary Fund. Strategy, Policy, & Review Department
,
International Monetary Fund. Finance Dept.
, and
International Monetary Fund. Legal Dept.
This paper provides background for an informal discussion to engage with Executive Directors, held on November 26, 2024, on the Comprehensive Review of GRA Access Limits. The General Resources Account (GRA) access limits are part of the Fund’s risk management framework. They help maintain a balance between the need to: (i) ensure that members have confidence in the availability of Fund financing; and (ii) preserve liquidity and the revolving nature of the Fund’s resources.
Keywords:
risk management framework; GRA lending commitment; transparency policy; managing transition; enterprise risk consideration; risk tolerance; financing needs; Credit; Liquidity; Credit risk; COVID-19; Global
Cover IMF Working Papers
Central Bank Digital Currencies and Financial Stability: Balance Sheet Analysis and Policy Choices
Romain Bouis
,
Gaston Gelos
,
Fumitaka Nakamura
,
Paavo A Miettinen
,
Erlend Nier
, and
Gabriel Soderberg
This paper offers a comprehensive analysis of the implications for financial stability of a central bank issuing a digital currency to the public at large. We start with a systematic analysis of balance sheet changes that arise from the new liability for the central bank and the banking system, and examine how they depend on preconditions, central bank choices, and banking system responses. Based on this, we discuss the range of implications for financial stability that may arise in steady state, in the context of adoption, and in crisis times. Threats to financial intermediation in steady state arise mainly in situations where the central bank balance sheet expands, and triggers adjustment mechanisms that lead to more costly or less stable funding of the banking system, while in crisis times run risk may increase. Our analysis of policy choices to control these effects considers macroprudential policy, and an expansion of central bank lending to commercial banks, but finds that a main contribution needs to come from a design of the CBDC that encourages its use as a means of payment rather than a store of value.
Keywords:
Central Bank Digital Currency; Financial Stability; Balance Sheets; Disintermediation; Bank Runs; central bank lending; CBDC issuance scenario; market operation; central bank choice; lending to commercial banks; Central Bank digital currencies; Commercial banks; Financial sector stability; Bank credit; Bank deposits; Global; Eastern Europe; Caribbean
Cover Technical Assistance Reports
Republic of Moldova: Technical Assistance Report-Design Considerations for a New Bank Liquidation Framework
International Monetary Fund. Legal Dept.
and
International Monetary Fund. Monetary and Capital Markets Department
At the request of the National Bank of Moldova (NBM), a technical assistance (TA) mission of the Monetary and Capital Markets Department and the Legal Department visited Chisinau during November 28 to December 5, 2022, to assist with the design of a revised bank liquidation framework. The mission reviewed three stylized models for bank liquidation – i.e., a purely administrative model in which a public authority (e.g., the resolution authority) directs the liquidation procedure, a judicial model that relies on court-supervised liquidation procedures, and a hybrid model in which a dedicated liquidator carries out the liquidation process under supervision of the court. It identified important considerations in support of a continued (albeit reduced) role for the NBM in bank liquidation and concluded that a hybrid model could be a viable option for Moldova: by shifting more responsibilities to the judiciary, the NBM’s Resolution Division could free up some resources, while maintaining synergies between the NBM’s responsibilities for adopting early intervention measures and (the planning of) bank liquidation. The mission recommended that, in such a model, the NBM retains the power to (i) initiate liquidation; (ii) appoint or propose liquidators; and (iii) undertake a ‘Purchase and Assumption’ type of transaction, whereby the deposits of the failing bank are transferred to a willing buyer. It also provided detailed guidance on, among others, (i) the triggers for determining when liquidation should be initiated; (ii) the process for commencing the liquidation process; (iii) the legislative design of transfer powers and associated safeguards; (iv) the role and appointment of liquidators; and (v) legal protection of the NBM.
Keywords:
Republic of Moldova; Bank Liquidation; Bank Failures; Purchase and Assumption; Depositors; Financial Stability.; bank liquidation model; Moldovan bank liquidation regime; NBM staff; NBM Law; liquidation framework; Financial sector stability; Bank resolution framework; Bank resolution; Banking crises
Cover IMF Working Papers
Aging Gracefully: Steering the Banking Sector through Demographic Shifts
Patrick A. Imam
and
Christian Schmieder
We analyze how aging populations might affect the stability of banking systems through changes in the balance sheets and risk preferences of banks over the period 2000-2022. While the anticipated decline in maturity transformation due to aging hints at a possible reduction in risk exposure, an older population may propel banks towards yield-seeking behaviors, offsetting the diminishing prominence of conventional lending operations. Through a comprehensive examination of advanced economies over the past two decades, our findings reveal a general enhancement in bank stability correlating with the aging of populations. However, the adaptive responses of banks to these demographic changes are potentially introducing tail risks. Given the rapid global shift towards aging societies, our analysis highlights the critical need for policymakers to be proactive and vigilant. This is particularly pertinent considering historical precedents where periods of relative stability have often been harbingers of emerging risks.
Keywords:
Aging; Demographics; Bank risk-taking; Financial Stability; IMF working paper No. 24/118; tail risk; risk preference; stability risk; solvency profile; bank assets; Commercial banks; Bank soundness; Loans; Global
Cover High-Level Summary Technical Assistance Reports
Barbados: Financial Stability Report
Petr Jakubik
The technical assistance is focused on enhancing the joint financial stability report of the Central Bank of Barbados and the Barbados Financial Services Commission. The mission concluded that the preparation of a detailed FSR production plan and communication strategy is of critical importance and could facilitate improvements and promote the report. The report should encompass all crucial elements of financial stability assessment and needs to be streamlined to follow the central storyline with key messages. The quality of the report could be further enhanced though advancements in the analytical toolkit employed and the utilization of all available data sources.
Keywords:
financial stability; financial stability report; systemic risk; analytical toolkit; FSR production plan; IMF capacity development recipient; high-level summary; FSR process; implementation plan; Financial sector stability; Financial sector risk; Central bank bills; Financial stability assessment; Caribbean
Cover IMF Working Papers
Central Banks Casting a Global Financial Safety Net: What Drives the Supply of Bilateral Swaps?
Jakree Koosakul
and
Alexei Miksjuk
The expansion of bilateral swap arrangements (BSAs) since the Global Financial Crisis has led to a substantial reconfiguration of the Global Financial Safety Net (GFSN). This paper examines the drivers of BSA supply using a novel dataset on all publicly documented BSAs. It finds that countries with well-developed financial markets and institutions and high trade openness are more likely to backstop other economies by establishing BSAs. In addition, their choice of BSA counterparts is driven by strong investment and trade exposures to these countries, with variation in the relative importance of these factors across major BSA providers. The paper shows that geopolitical considerations often affect such decisions, as BSAs are less likely to be established between geopolitically distant countries and more likely between countries in the same regional economic bloc.
Keywords:
Bilateral swap arrangements; geoeconomic fragmentation; global financial safety net; liquidity provision; BSA supply; BSA source country; GFSN evolution; BSA counterpart; Liquidity; Financial sector development; Financial safety nets; International reserves; Global financial crisis of 2008-2009; Global
Cover IMF Working Papers
Determinants of Zombie Banks in Emerging Markets and Developing Economies
Torsten Wezel
,
Hannah Sheldon
, and
Zhengwei Fu
While deeply undercapitalized banks have been shown to misallocate credit to weak firms, the drivers of such zombie banks are less researched, particularly across countries. To furnish empirical evidence, we compile a dataset of undercapitalized banks from emerging markets and developing economies. We classify zombie banks as those not receiving remedial treatment by owners or regulators or, alternatively, remaining chronically undercapitalized. Using logit regressions, we find that country-specific factors are more influential for zombie status than bank characteristics, alhough some become significant when disaggreating by region. The paper’s overall findings imply the need for a proper regulatory framework and an effective resolution regime to deal with zombie banks more decisively.
Keywords:
Banks; Capital Requirements; Financial Crises; summary statistics; zombie bank; zombie share; zombie status; equity ratio; Banking crises; Bank resolution; Credit; Asia and Pacific; Global; Europe; Africa
Cover The IMF and the European Debt Crisis
The IMF and the European Debt Crisis
Harold James

Abstract

The book explores the Fund’s engagement in Europe in the aftermath of the 2008 global financial crisis, and especially after 2010. It explains how, why, and with what consequences the International Monetary Fund—along with the European Central Bank and the European Commission (together known as “the troika”)—supported adjustment programs in Greece, Ireland, Portugal, and Cyprus as well as helping to monitor Spain’s adjustment program and exploring modalities for supporting Italy. Additionally, it analyzes how the euro area developments interacted with and affected the rest of Europe, including not only eastern and southeastern Europe but also the United Kingdom, where the political fallout from post-financial crisis populism—in the form of “Brexit” from the European Union—was, in the end, the most extreme. The IMF’s European programs embroiled the Fund in numerous controversies over the exceptionally large lending, over whether or not to impose losses on private creditors, and over the mix between external financing and internal adjustment undertaken by program countries. They also required the IMF to confront longstanding questions about its governance and evenhandedness in the treatment of different segments of its membership. The crisis programs, with Greece, Ireland, Portugal and Cyprus, all revolved around debt sustainability. In the Greek case, after an intense internal debate, the IMF initially chose a program without debt reduction because it feared that such a program–even if ultimately in the interests of Greece, the client country–would trigger a panic of banks and other creditors and thus generate contagion for the rest of Europe. Learning from the Greek case, in Ireland and Portugal, the IMF pushed for debt reduction, to which the government in Ireland but not in Portugal was sympathetic. There was thus no private sector debt reduction in Ireland and Portugal. The European programs were caught up in big geopolitical debates about the appropriate role of the Fund in the aftermath of the global financial crisis. The book examines the intellectual and policy shifts that took place in the IMF as a result of the controversies about its European programs. It concludes with some reflections on how all the programs also produced genuine policy reform and held out the possibility of a return to growth and prosperity.

Keywords:
Debt; debt sustainability; bank crisis; deflation; IMF conditionality; policy reform; current account imbalances.; IMF mission; finance minister; IMF crisis lending; IMF official; stabilization plan; Debt restructuring; Sovereign bonds; Europe; Global; Eastern Europe; Baltics; East Asia
Cover IMF Working Papers
Financial Stress and Economic Activity: Evidence from a New Worldwide Index
Hites Ahir
,
Mr. Giovanni Dell'Ariccia
,
Davide Furceri
,
Mr. Chris Papageorgiou
, and
Hanbo Qi
This paper uses text analysis to construct a continuous financial stress index (FSI) for 110 countries over each quarter during the period 1967-2018. It relies on a computer algorithm along with human expert oversight and is thus easy to update. The new indicator has a larger country and time coverage and higher frequency than similar measures focusing on advanced economies. And it complements existing binary chronologies in that it can assess the severity of financial crises. We use the indicator to assess the impact of financial stress on the economy using both country- and firm-level data. Our main findings are fivefold: i) consistent with existing literature, we show an economically significant and persistent relationship between financial stress and output; ii) the effect is larger in emerging markets and developing economies and (iii) for higher levels of financial stress; iv) we deal with simultaneous causality by constructing a novel instrument—financial stress originating from other countries—using information from the text analysis, and show that, while there is clear evidence that financial stress harms economic activities, OLS estimates tend to overestimate the magnitude of this effect; (iv) we confirm the presence of an exogenous effect of financial stress through a difference-in-differences exercise and show that effects are larger for firms that are more financially constrained and less profitable.
Keywords:
Financial stress; text analysis; country reports; continuous indicator; country and firm economic activity.; firm economic activity; effect of FSI; financial crises episode; Financial soundness indicators; Banking crises; Reserve requirements; Global financial crisis of 2008-2009; Global