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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 Departmental Papers
Asset Purchase Programs in European Emerging Markets
Mr. Marco Arena
,
Mr. Rudolfs Bems
,
Mr. Nadeem Ilahi
,
Mr. Jaewoo Lee
,
William Lindquist
, and
Mr. Tonny Lybek
Several emerging market central banks in Europe deployed asset purchase programs (APPs) amid the 2020 pandemic. The common main goals were to address market dysfunction and impaired monetary transmission, distinct from the quantitative easing conducted by major advanced economy central banks. Likely reflecting the global nature of the crisis, these APPs defied the traditional emerging market concern of destabilizing the exchange rate or inflation expectations and instead alleviated markets successfully. We uncover some evidence that APPs in European emerging markets stabilized government bond markets and boosted equity prices, with no indication of exchange rate pressure. Examining global and domestic factors that could limit the usability of APPs, in the event of renewed market dysfunction we see a potential scope for scaling up APPs in most European emerging markets that used APPs during the pandemic, provided that they remain consistent with the primary objective of monetary policy and keep a safe distance from the risk of fiscal dominance. As central banks in the region move towards monetary policy tightening, the tapering, ending, and unwinding of APPs must also be carefully considered. Clear and transparent communication is critical at each step of the process, from the inception to the closure of APPs, particularly when a large shock hits and triggers a major policy shift.
Keywords:
Monetary policy; Emerging markets; COVID-19 pandemic; Europe; asset purchase programs; emerging market concern; IMF library; market dysfunction; emerging market central banks; Yield curve; Government securities; Sovereign bonds; Emerging and frontier financial markets; Central bank policy rate; Global
Cover Regional Economic Outlook, October 2020, Europe
Regional Economic Outlook, October 2020, Europe
Whatever It Takes: Europe’s Response to COVID-19
International Monetary Fund. European Dept.

Abstract

The COVID-19 pandemic has caused dramatic loss of human life and major damage to the European economy, but thanks to an exceptionally strong policy response, potentially devastating outcomes have been avoided.

Keywords:
lockdowns; pandemic; corporate liquidity; recovery; reopening; economic outlook; forecasting; REO; policy support; infection curve; job retention program; Europe transform; financial market disruption; pandemic economy; solvency risks in Europe; time trend; reopening indices; infection incidence; reinfection risk; infection rate; credit access; containment policy; COVID-19; Liquidity; Solvency; Infrastructure; Europe; Global
Cover IMF Working Papers
Interconnectedness and Contagion Analysis: A Practical Framework
Mrs. Jana Bricco
and
Ms. TengTeng Xu
The analysis of interconnectedness and contagion is an important part of the financial stability and risk assessment of a country’s financial system. This paper offers detailed and practical guidance on how to conduct a comprehensive analysis of interconnectedness and contagion for a country’s financial system under various circumstances. We survey current approaches at the IMF for analyzing interconnectedness within the interbank, cross-sector and cross-border dimensions through an overview and examples of the data and methodologies used in the Financial Sector Assessment Program. Finally, this paper offers practical advice on how to interpret results and discusses potential financial stability policy recommendations that can be drawn from this type of in-depth analysis.
Keywords:
WP; equity index; bank-investment fund interlinkage; Reduce bank exposure; market data; bank-insurance nexus; default threshold; nexus analysis; Interconnectedess; Contagion; Financial Stability; Financial Systems; Risk Analysis; Systemic Risk; cross-border bank contagion; bank exposure; bank default probability; bank distress sensitivity; banks insurer; distress sensitivity; Financial Sector Assessment Program; Financial contagion; Commercial banks; Stress testing; Global
Cover IMF Working Papers
How Effective is Macroprudential Policy? Evidence from Lending Restriction Measures in EU Countries
Mr. Tigran Poghosyan
This paper assesses the effectiveness of lending restriction measures, such as loan-to-value and debt-service-to-income ratios, in affecting developments in house prices and credit. We use data on 99 lending standard restrictions implemented in 28 EU countries over 1990–2018. The results suggest that lending restriction measures are generally effective in curbing house prices and credit. However, the impact is delayed and reaches its peak only after three years. In addition, the impact is asymmetric, with tightening measures having weaker association with target variables compared to loosening measures. The association is stronger in countries outside of euro area and for legally-binding measures and measures involving sanctions. The results have practical implications for macroprudential authorities.
Keywords:
WP; macroprudential regulation; financial stability; credit; house prices; monetary policy rate; restriction measure; target variable; house price growth; lending restriction measure; number of observation; property price growth; credit growth; Housing prices; Central bank policy rate; Macroprudential policy instruments; Foreign banks; Global
Cover IMF Staff Country Reports
Romania: Financial Sector Assessment Program-Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision
International Monetary Fund. Monetary and Capital Markets Department
This paper discusses findings of the Detailed Assessment of Observance of the Basel Core Principles (BCP) for Effective Banking Supervision in Romania. The supervisory approach of the National Bank of Romania (NBR) has been changing toward a more risk based approach since the previous BCP assessment, but more needs to be done. Further development of the NBR’s supervisory approach will make supervision more effective and in line with the requirements of the 2012 BCP. The NBR may need to devote more supervisory attention to banks’ risk models and building up further expertise in specialized areas such as information technology and market risk. In the area of corrective actions and sanctions, the NBR should review its framework to ensure it is protected from undue legal challenges.
Keywords:
ISCR; CR; credit institution; NBR regulation; senior management; banking law
Cover IMF Staff Country Reports
Romania: Financial Sector Assessment Program
International Monetary Fund. Monetary and Capital Markets Department
This paper assesses the stability of the Romania’s financial system. Romania’s financial sector has strengthened significantly over the last few years. Effective supervisory measures have helped reduce the high level of nonperforming loans from 21.9 percent at its peak in 2013 to 6.4 percent as of December 2017. Foreign-owned banks’ dependence on parent funding has significantly declined, while deposits from the domestic private sector have increased, reducing liquidity risks. Banks’ capital buffers strengthened, on the back of a slowdown of credit and low interest rates, with an average capital to risk-weighted assets now above 18 percent. However, some vulnerabilities are emerging, and policy action is needed to address these risks and strengthen financial stability.
Keywords:
ISCR; CR; NBR; bank; loan; return on assets; bank soundness indicator; repo facility; NBR subjects bank; parent bank; NBR securities; a number of bank; bank resolution purpose; Eurozone bank; bank corporate governance; subjects bank; supervisory approach; Commercial banks; Loans; Credit; Stress testing; Global
Cover IMF Staff Country Reports
Romania: Financial Sector Assessment Program-Technical Note-Macroprudential Policy Framework and Tools
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note analyzes the implementation of macroprudential policy framework and tools in Romania. The National Bank of Romania (NBR) has a long experience in implementing macroprudential policy measures. The NBR monitors several indicators to assess the build-up of systemic risk, many of which are derived from the nation-wide credit register and related data sources. The institutional framework for macroprudential policymaking has recently been revised and contains a clear mandate and well-defined objectives, but NBR’s role seems constrained. It is recommended that the macroprudential policy toolkit should be strengthened further to address risks identified in the Financial Sector Assessment Program’s risk analysis. The systemic risk buffer should be calibrated carefully to address risks stemming from the strong sovereign-bank nexus.
Keywords:
ISCR; CR; FX bank lending; FX liquidity risk; FX loan; equity holding; funding pattern; parent bank; sovereign-bank nexus; banks' balance sheets; Macroprudential policy; Credit; Systemic risk assessment; Systemic risk; Mortgages; Global
Cover IMF Staff Country Reports
Romania: Financial Sector Assessment Program-Technical Note-Crisis Preparedness and Safety Net
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note assesses the state of crisis preparedness and safety net in Romania. The bank resolution and crisis management toolkit has been significantly revamped since the last Financial Sector Assessment Program. The implementation of the Bank Resolution and Recovery Directive in Romania enhanced the National Bank of Romania’s (NBR) powers to deal with failing banks, while the Bank Deposit Guarantee Fund gained greater involvement in these processes. The NBR has been charged with new responsibilities that flow from its ongoing role as supervisory and resolution authority, namely the enforcement and analysis of recovery planning requirements and the preparation of resolution plans. Some elements needed for the effectiveness to the crisis management framework are still work-in-progress.
Keywords:
ISCR; CR; bank Recovery; central bank; repo facility; resolvability assessment methodology; investment policy; resolution framework; NBR order No.; resolution planning; bank deposit Guarantee Fund; liquidation procedure; resolution college; NBR remit; NBR's repo facility; order No.; Bank resolution framework; Bank resolution; Crisis management; Crisis prevention; Crisis management framework; Global
Cover IMF Staff Country Reports
Romania: Financial Sector Assessment Program-Technical Note-Systemic Risk Analysis and Stress Testing the Financial Sector
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note discusses the results of systemic risk analysis and stress testing of Romania’s financial sector. Although the Romanian banking sector has a strong initial capital position, banks are affected significantly by the realization of the shocks captured by the scenarios. The stress test results indicate that an extreme but plausible adverse scenario would have a significant negative impact on the capital ratios of the banking system. Although the banking sector as a whole maintains capital ratios above the minimum regulatory requirements, several (smaller) banks prove vulnerable. The extreme adverse scenario reflects downside external risks as well as a domestic demand shock impacting private consumption and investment.
Keywords:
ISCR; CR; parent bank; a number of bank; central bank; balance sheets; monetary policy; foreign currency; longer-term liquidity position; defaulting bank; resilience to external shocks; banks in the network; OSII bank; sovereign-bank nexus; banks' exposure; capitalization ratios; demand shock; Commercial banks; Stress testing; Credit; Liquidity requirements; Loans; Europe; Global