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Business and Economics > Finance: General

You are looking at 1 - 10 of 15 items for :

  • Type: Journal Issue x
  • IMF Staff Position Notes x
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Cover IMF Staff Position Notes
Shaping the New Financial System
Ms. Marina Moretti
,
Mr. Aditya Narain
,
Ms. Laura E. Kodres
,
Ceyla Pazarbasioglu
,
José Vinãls
, and
Jonathan Fiechter
Three years after the onset of the global financial crisis, much has been done to reform the global financial system, but there is much left to accomplish. The regulatory reform agenda agreed by G-20 leaders in 2009 has elevated the discussions to the highest policy level and kept international attention focused on establishing a globally consistent set of rules. Comprehensive reform, once agreed and implemented in full, will have far-reaching implications for the global financial system and the performance of the world economy. In designing the reforms, it is imperative that policymakers keep their focus on the overarching objective of creating a financial system that provides a solid foundation for strong and sustainable economic growth. This paper argues that the current reforms are moving in the right direction, but many policy choices lie ahead—nationally and internationally?which are both urgent and challenging. Policies need to address not only the risks posed by individual banks but also, importantly, those posed by nonbanks and the system as a whole. The recent proposals of the Basel Committee on Banking Supervision (BCBS) represent a substantial improvement in the quality and quantity of bank capital, but these apply only to a subset of the financial system.
Keywords:
SPN; financial institution; market; capital; global financial system; repurchase market; financial system; conservation buffer; financial activity; IMF-FSB early warning exercise; commercial paper; private label securitization market; OTC derivatives market; bank capital; market discipline; market infrastructure; market dynamics; Financial sector stability; Systemic risk; Bank resolution framework; Liquidity requirements; Global
Cover IMF Staff Position Notes
Redesigning the Contours of the Future Financial System
Ms. Laura E. Kodres
and
Mr. Aditya Narain
This paper explores the private- and public-sector responses to the crisis and some of the probable outcomes. Aside from improved supervision of individual institutions, greater emphasis needs to be put on financial regulations that reflect the systemic nature of financial risks and the role that macroeconomic policies play. Global consistency of regulation and financial sector taxation will be essential to mitigate systemic risks, avoid unintended distortions, and help ensure a level playing field. This note suggests the key aspects of the future contours will likely be: ? Banks are expected to return to their more traditional function as stricter regulation will limit the risks and activities they can undertake. ? The nonbanking sector will likely have a greater competitive advantage—both in supplying credit and providing investors with nonbank services—and will thus grow. ? The perimeter of regulation will need to expand to take into account risks in the nonbank sector. ? Market infrastructure will be reinforced to protect investors and will need to provide simplicity and transparency to make risks clearer and the financial system safer. ? The global financial system is likely to be smaller and less levered than in the recent past, and could well be less innovative and dynamic, at least for a while.
Keywords:
SPN; functioning financial system; economic growth; IMF policy advice; credit risk; banking sector; banking system assets; market discipline; financial system assets; CDS market; accounting rule; market practice; Commercial banks; Systemic risk; Financial sector stability; Credit; Nonbank financial institutions; Global
Cover IMF Staff Position Notes
The Making of Good Supervision: Learning to Say "No"
Ms. Jennifer A. Elliott
,
Mr. Aditya Narain
,
Ian Tower
,
José Vinãls
,
Pierluigi Bologna
,
Michael Hsu
, and
Jonathan Fiechter
The quality of financial sector supervision has emerged as a key issue from the financial crisis. While most countries operated broadly under the same regulatory standards, differences emerged in supervisory approaches. The international response to this crisis has focused on the need for more and better regulations (e.g., in areas such as bank capital, liquidity and provisioning) and on developing a framework to address systemic risks, but there has been less discussion of how supervision itself could be strengthened. The IMF’s work in assessing compliance with financial sector standards over the past decade in member countries suggests that while progress is being made in putting regulation in place, work remains to be done in many countries to strengthen supervision. How can this enhanced supervision be achieved? Based on an examination of lessons from the crisis and the findings of these assessments of countries’ compliance with financial standards, the paper identifies the following key elements of good supervision—that it is intrusive, skeptical, proactive, comprehensive, adaptive, and conclusive. To achieve these elements, the “ability” to supervise, which requires appropriate resources, authority, organization and constructive working relationships with other agencies must be complemented by the “will” to act. Supervisors must be willing and empowered to take timely and effective action, to intrude on decision-making, to question common wisdom, and to take unpopular decisions. Developing this “will to act” is a more difficult task and requires that supervisors have a clear and unambiguous mandate, operational independence coupled with accountability, skilled staff, and a relationship with industry that avoids “regulatory capture.” These essential elements of good supervision need to be given as much attention as the regulatory reforms that are being contemplated at both national and international levels. Indeed, only if supervision is strengthened can we hope to effectively deliver on the challenging—but crucial—regulatory reform agenda. For this to happen, society must stand with supervisors as they play their role as naysayers in times of exuberance.
Keywords:
SPN; supervision; agency; authority; market; risk management
Cover IMF Staff Position Notes
Approaches to Corporate Debt Restructuring in the Wake of Financial Crises
Thomas Laryea
This paper starts from a discussion of the economic case for moderated government intervention in debt restructuring in the nonfinancial corporate sector. It then draws on lessons from past crises to explain three broad approaches that have been applied to corporate debt restructurings in the aftermath of a crisis. From there, it addresses challenges in designing and implementing a comprehensive debt restructuring strategy and draws together some key principles.
Keywords:
SPN; restructuring strategy; default case; debt problem; debt substitution; financial support; private sector; restructuring agreement; restructuring process; private sector debt problem; debt restructuring guideline; debt restructuring effort; household debt problem; debt restructuring strategy; pre-existing debt; debt-servicing obligation; restructuring phase; Debt restructuring; Debt strategy; Legal support in revenue administration; Solvency; Global; wake of financial crises; government intervention; Corporate sector
Cover IMF Staff Position Notes
Unconventional Choices for Unconventional Times Credit and Quantitative Easing in Advanced Economies
Mr. Vladimir Klyuev
,
Phil De Imus
, and
Mr. Krishna Srinivasan
This paper examines the unconventional monetary policy actions undertaken by G-7 central banks and assesses their effectiveness in alleviating financial market pressures and facilitating credit flows to the real economy. Central banks acted nimbly, decisively, and creatively in their response to the deepening of the crisis. They embarked on a number of unconventional policies, some of which had been tried before, while others were new. The scale and scope of unconventional measures have differed substantially across major central banks. Massive asset purchases have boosted the size of the central bank balance sheets the most in the United States and the United Kingdom. However, the Bank of England has relied primarily on the purchases of government bonds, while the Fed has acquired a variety of assets, including commercial paper and mortgage-backed securities and providing financing for acquisition of other asset-backed securities. Central bank interventions, along with government actions, have been broadly successful in stabilizing financial conditions over time.
Keywords:
SPN; government bond; financial market; quantitative easing; excess reserves; monetary policy; money market; liquidity operations; issue central bank bank bill; Fed liquidity; bank reserves; overnight rate; liquidity facilities; central bank currency swaps; preferred shares; Credit; Liquidity; Sovereign bonds; Central bank policy rate; Securities; Global; Europe
Cover IMF Staff Position Notes
Policies to Address Banking Sector Weakness: Evolution of Financial Markets and Institutional Indicators
Mr. Ivan S Guerra
,
Mr. R. B. Johnston
,
Karim Youssef
, and
Mr. Andre O Santos
This paper reviews the impact of policies to address banking sector weaknesses through the first months of 2009. At the time of this assessment, central bank intervention had successfully addressed pressures on bank liquidity, but the underlying financial position of financial institutions, particularly the large complex financial institutions (LCFIs), remained precarious. Although Tier 1 ratios had been boosted through the capital injections, tangible common equity (TCE) remained at a critical level for most institutions. Asset quality was weakening, and credit spreads for LCFIs remained wide. Measures had not stemmed the market-driven deleveraging process, and lending surveys pointed to various levels of credit tightening in the United States, Europe, Switzerland, and the United Kingdom. The success of government support measures can be assessed by their impact on bank soundness indicators. Government support measures should have a positive effect on bank soundness by improving bank liquidity, profitability, capital adequacy, and asset quality.
Keywords:
SPN; market; commercial paper; asset; bank; liquidity facility; central bank; commercial paper issuance; asset quality; preferred shares; tax assets; market participant; market confidence; Credit; Commercial banks; Liquidity; Loans; Securities; Europe; Global
Cover IMF Staff Position Notes
The State of Public Finances: A Cross-Country Fiscal Monitor
Mr. Paolo Mauro
,
Mr. Mark A Horton
, and
Mr. Manmohan S. Kumar
This paper presents sharp increase in government debt has complicated the management of preexisting challenges from population aging, especially in advanced economies. The increase in debt ratios projected for these economies is the largest since World War II. The increase in deficits and debt raises complicated tradeoffs. Policymakers will need to balance two competing risks: on the one hand, a too hasty withdrawal of fiscal stimulus would risk nipping a recovery in the bud; on the other hand, with a delayed withdrawal investor concerns about sustainability may increase, leading to higher interest rates on government paper, undermining the recovery and increasing risks of a snowballing of debt. Regardless of the timing of adjustment, its necessary scale will be quite large, particularly for high-debt advanced economies. Preserving investor confidence in government solvency is key to avoiding an increase in interest rates, thereby not only preventing snowballing debt dynamics, but also ensuring that the fiscal stimulus is effective.
Keywords:
SPN; G20 industrial nations; country; GDP; market G-20 country; country authorities; interest rate; government financing; country circumstances; fund G-20 desk; GDP ratio; stimulus spending; PPP GDP-weighted average; financial support; ameliorating spending dynamics; emerging G-20 country; Emerging and frontier financial markets; Fiscal stance; Fiscal stimulus; Global; Europe; Africa
Cover IMF Staff Position Notes
Global Financial Regulatory Reform: Implications for Latin America and the Caribbean (LAC)
Mr. Robert Rennhack
The Latin America and Caribbean (LAC) region has weathered the global financial crisis reasonably well so far, although tighter global financial conditions began to take their toll on trade, capital flows and economic growth in late 2008. This resilience reflects the reforms put in place by many countries over the past decade to strengthen financial supervision and adopt sound macroeconomic policies. Building on this progress, the region’s financial sector reform agenda now aims at further improvements, including steps aiming to improve compliance with the Basel Core Principles of Banking Supervision and to broaden and deepen domestic financial markets.
Keywords:
SPN; financial activity; capital market; balance sheet; lender of last resort; banking system; currency swap; commercial paper; reverse repo; bank-risk indicator; mortgage lender; parent bank; bank affiliate; repurchase agreement; bank mortgage lender; preferred shares; Credit; Capital adequacy requirements; Liquidity; Global; Caribbean; Central America
Cover IMF Staff Position Notes
Principles of Household Debt Restructuring
Thomas Laryea
and
Mr. Luc Laeven
This paper examines the estimated compliance with the macroeconomic convergence targets for 2008, based on estimates contained in the IMF’s Regional Economic Outlook: Sub-Saharan Africa (the REO). SADC’s regional economic integration agenda includes a macroeconomic convergence program, intended to achieve and maintain macroeconomic stability in the region, thereby contributing to faster economic growth and laying the basis for eventual monetary union. Targets for key macroeconomic variables have been set out for 2008, 2012, and 2018. Most SADC member states have recorded solid macroeconomic performance in recent years, in general coming close to, and in many cases surpassing, the convergence targets specified for 2008. A notable exception in this regard is Zimbabwe, which was in the grip of hyperinflation. The macroeconomic targets for 2012 are ambitious and, in some cases, warrant further evaluation, given that achieving the targets may be neither necessary nor sufficient to achieve good macroeconomic results.
Keywords:
SPN; debt; loan; borrower; bank; creditor debt renegotiation; restructuring program; payment moratorium; government bank recapitalization program; household debt problem; Debt restructuring; Loans; Distressed assets; Debt burden; Credit
Cover IMF Staff Position Notes
The Economics of Bank Restructuring: Understanding the Options
Augustin Landier
and
Mr. Kenichi Ueda
Based on a simple framework, this note clarifies the economics behind bank restructuring and evaluates various restructuring options for systemically important banks. The note assumes that the government aims to reduce the probability of a bank’s default and keep the burden on taxpayers at a minimum. The note also acknowledges that the design of any restructuring needs to take into consideration the payoffs and incentives for the various key stakeholders (i.e., shareholders, debt holders, and government).
Keywords:
SPN; debt holder; default probability; asset sale; asset value; bank assets; preferred shares; equity holder; debt-for-equity swap; asset quality; asset guarantee; Stocks; Asset valuation; Asset management; Distressed assets; Securities