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Business and Economics > Finance: General

You are looking at 1 - 10 of 67 items for :

  • Type: Journal Issue x
  • Corporate Finance and Governance: Government Policy and Regulation x
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Cover Departmental Papers
Corporate Sector Vulnerabilities and High Levels of Interest Rates
Bruno Albuquerque
,
Nassira Abbas
,
José M. Garrido
,
Deepali Gautam
,
Benjamin Mosk
,
Thomas Piontek
,
Anjum Rosha
,
Thierry Tressel
, and
Aki Yokoyama
This paper provides a comprehensive overview of corporate sector vulnerabilities that have emerged post-pandemic. The main focus in on the financial stability implications from corporate sector vulnerabilities in a new environment of high interest rates. Although several central banks have recently started cutting interest rates, the expectation is that high interest rates, above pre-pandemic levels, are here to stay. It is then especially important to design and deploy appropriate policies that may prevent and mitigate risks from the corporate sector. The main findings of the paper are as follows. First, the paper finds that interest rate increases may transmit more strongly to the real economy in the current environment since the global share of financially distressed firms has been trending upwards, especially in emerging markets (EMs). Moreover, the lagged effects of past monetary policy tightening may have adverse effects on firms’ capacity to invest. Second, an adverse macroeconomic scenario of negative demand shocks coupled with higher interest rates would lead to a fast and large increase in corporate defaults. Financial stability risks would increase materially, especially for EMs and less-developed banking systems, as bank capital buffers would fall considerably in this scenario. Third, the increasing role of nonbanks in corporate credit intermediation in advanced economies may amplify overall financial stability risks. This paper closes some of the data gaps and shows that since the GFC, nonbanks have been increasing their exposure to riskier firms and to the less productive segment of the economy, including zombie firms and nontradable firms. The migration of credit to the unregulated sector raises concerns about the propagation of risks to the rest of the financial system from a potential corporate default cycle. It is paramount to continue closing data gaps in this sector, while extending the regulatory perimeter to nonbanks to improve the overall resilience of the financial sector. Finally, the paper documents some progress on insolvency and restructuring regimes to deal with corporate distress since the pandemic. Nevertheless, several shortcomings persist that prevent countries from resolving firms quickly in a potential scenario of an intensification of corporate distress.
Keywords:
corporate vulnerabilities; insolvency frameworks; financial stability; monetary policy; nonbanks; corporate stress tests; crisis preparedness indicator; monetary policy shock; IMF Library; nonbank financials; differential effect; nonfinancial corporates default probability; Corporate sector; Solvency; Credit; Business enterprises; COVID-19; Global
Cover IMF Staff Country Reports
Belgium: Financial Sector Assessment Program-Technical Note on Regulation and Supervision of Less Significant Institutions
International Monetary Fund. Monetary and Capital Markets Department
This paper focuses on the technical note on regulation and supervision of less significant institutions in Belgium. The financial sector assessment program (FSAP) undertook a targeted review of Belgium’s Less Significant Institutions (LSI) and third-country branches (TCBs) banking regulation and supervision. The National Bank of Belgium (NBB) and Financial Services and Markets Authority have well-established processes for prudential, product and conduct supervision of LSIs. While NBB’s overall supervisory approach is adequate, the regulatory framework for corporate governance could be enhanced. Internal decision-making processes and the underpinning of certain decision proposal could in some specific instances be enhanced. With regard to NBB’s internal supervisory processes, some fine-tuning and continued attention could be useful. The NBB should continue to ensure adequate staffing for LSI and TCB supervision and continue to carefully consider how to address any supervisory Information Technology risk concerns. Banks’ internal capital target could usefully be added to the NBB’s internal monitoring. A structured approach for conduct risk and consumer protection information sharing with the FSMA and the Ministry of Economic Affairs should be put in place.
Keywords:
Belgium LSI sector; credit institution; market development; LSI sector; NBB governance Manual; Belgium's Less Significant Institutions; Financial Sector Assessment Program; External balance assessment (EBA); Bank supervision; Bank legislation; Global
Cover IMF Working Papers
The Economic Consequences of Social Unrest: Evidence from Initial Public Offerings
Mr. Philip Barrett
,
Thomas J. Boulton
, and
Terry D. Nixon
Prior research attributes negative stock market performance following episodes of social unrest to elevated uncertainty. However, social unrest does not solely increase uncertainty, but separately acts to decrease investor sentiment. To determine which effect dominates, we study initial public offering (IPO) underpricing, which responds differently to changes to uncertainty and investor sentiment. Consistent with the notion that social unrest dampens investor sentiment, we find robust evidence that IPO first-day returns are lower during times of greater social unrest. Limits to arbitrage intensify the negative relation between social unrest and underpricing. Notably, strong institutional frameworks mitigate the impact of social unrest on underpricing, suggesting that quality institutions weaken the link between investor sentiment and returns.
Keywords:
Initial public offerings; investor sentiment; social unrest; underpricing; evidence from initial public offerings; quality institution; IPO underpricing; IPO price; Initial public offering; Stock markets; Global; Caribbean
Cover IMF Working Papers
Good Supervision: Lessons from the Field
Mr. Tobias Adrian
,
Ms. Marina Moretti
,
Ana Carvalho
,
Hee Kyong Chon
,
Katharine Seal
,
Fabiana Melo
, and
Jay Surti
Keeping banks safe and sound hinges on good supervision. The bank failures of March 2023 precipitated questions about the effectiveness of supervision. This paper reflects on lessons learned from this banking turmoil and reviews global progress in delivering effective supervision over the past ten years. It finds progress in areas like risk monitoring, stress testing, and business model analysis. Yet, progress has also been hampered by deficiencies in supervisory approaches, techniques, tools, and (use of) corrective and sanctioning powers, as well as by unclear mandates, inadequate powers, and lack of independence and resources. Overcoming these deficiencies requires supervisors to improve their own performance and other policy makers to contribute to ensuring vigilant, independent and accountable supervision.
Keywords:
Banks; supervision; prudential standards; lack of independence; business model; risk profile; bank turbulence; courses of action; supervision framework; light touch supervision; bank turmoil; compliance departments; bank strategy; supervision process; Basel Core Principles; Bank supervision; Corporate governance; Stress testing; Financial sector stability; Global
Cover IMF Staff Country Reports
South Africa: Financial Sector Assessment Program-Technical Note on Banking Regulation and Supervision
International Monetary Fund. Monetary and Capital Markets Department
The implementation of a twin peaks model represents a significant change to the South African financial supervisory architecture. The Prudential Authority (PA), operating within the administration of the South African Reserve Bank (SARB), is responsible for promoting and enhancing the safety and soundness of financial institutions that provide financial products and securities services. A separate authority, the Financial Sector Conduct Authority2 (FSCA), is responsible for market conduct regulation and supervision. The introduction of the twin peaks architecture was motivated by a need to increase the robustness of the financial sector regulatory and supervisory system, reinforce financial stability, improve protection of customers, and enhance cooperation among the regulators.
Keywords:
IMF-World Bank Financial Sector Assessment Program; WB staff; staff team of the International Monetary Fund; FSAP's finding; bank supervision department; H. liquidity risk; Bank supervision; Corporate governance; External audit; Auditing; Africa; Global
Cover Departmental Papers
Regulating, Supervising, and Handling Distress in Public Banks
Mark Adams
,
Hanife Yesim Aydin
,
Hee Kyong Chon
,
Anastasiia Morozova
, and
Ebru S Iskender
This paper highlights the distinct challenges and suggests practical solutions to the effective regulation, supervision, and crisis management for public banks. It acknowledges that public banks exist for variety of reasons (legacy, ideology, public policy) and will likely remain a feature of financial systems in a number of countries. On this basis, it provides advice on how to best incorporate public banks in the regulatory paradigm commensurate with their risk profiles.
Keywords:
Public banks; development banks; regulation; supervision; resolution; crisis management; corporate governance; development bank; State supervision; policy lending; privileged access; arm's-length governance structure; State-owned banks; Commercial banks; Corporate governance; Bank resolution framework; Public enterprises; Global
Cover IMF Staff Country Reports
Kingdom of the Netherlands-Curaçao and Sint Maarten: Technical Assistance Report-Implementation of Risk-Based Supervision
International Monetary Fund. Monetary and Capital Markets Department
The CBvCSM is the sole supervisory authority for all regulated financial institutions operating locally and in the offshore (or international) sector, as well as the stock exchange in Curacao and St Maarten. The financial sector comprises different types of institutions, which include banks and non-bank institutions, insurance companies (both Life, and Non-life), securities intermediaries, asset management firms, investments institutions, fund administrators, management of pension funds, reinsurers, and trust companies.
Keywords:
supervision department; expert supervision; risk profile; supervision Department; account supervision; Corporate governance; Risk-based supervision; Liquidity; Wages; Pension spending; Caribbean
Cover Departmental Papers
Policy Options for Supporting and Restructuring Firms Hit by the COVID-19 Crisis
Ms. Juliana Dutra Araujo
,
Jose M Garrido
,
Emanuel Kopp
,
Mr. Richard Varghese
, and
Weijia Yao
This paper presents principles that could guide the design of more targeted policy support and facilitate the restructuring of firms adversely impacted by the COVID-19 pandemic. To this end, the paper takes stock of vulnerabilities and risks in the enterprise sector and assesses countries’ preparedness to handle a large-scale restructuring of businesses. Crisis preparedness of insolvency systems is measured according to a newly designed indicator that includes five dimensions of the insolvency and restructuring regime (out-of-court restructuring, hybrid restructuring, reorganization, liquidation, and the institutional framework). Vulnerabilities tend to be more pronounced in jurisdictions with shortcomings in crisis preparedness, and those countries need to step up efforts to improve their insolvency systems.
Keywords:
Corporate Debt; Solvency Support to Enterprises; Insolvency; Reorganization; Liquidation; Restructuring; COVID-19; policy support scheme; policy option; restructuring firm; nonfinancial firm; solvency support; untargeted support; Solvency; Debt restructuring; Crisis prevention; Corporate sector; Global
Cover IMF Working Papers
Corporate Sector Resilience in India in the Wake of the COVID-19 Shock
Lucyna Gornicka
,
Ms. Sumiko Ogawa
, and
Ms. TengTeng Xu
To assess the resilience of India’s corporate sector against COVID-19-related shocks, we conducted a series of stress tests using firm-level corporate balance sheet data. The results reveal a differential impact across sectors, with the most severe impact on contact-intensive services, construction, and manufacturing sectors, and micro, small, and medium enterprises. On policy impact, the results highlight that temporary policy measures have been particularly effective in supporting firm liquidity, but the impact on solvency is less pronounced. On financial sector balance sheets, we found that public sector banks are more vulnerable to stress in the corporate sector, partly due to their weaker starting capital positions. When considering forward-looking multiperiod growth scenarios, we find that the overall corporate performance will depend on the speed of recovery. A slower pace of recovery could lead to persistently high levels of debt at risk, especially in some services and industrial sectors.
Keywords:
balance sheet data; micro firm; firm liquidity; firm's equity; firm's ability; manufacturing firm; Stress testing; Corporate sector; COVID-19; Financial statements; Solvency stress testing; Global
Cover Departmental Papers
Taxing Multinationals in Europe
Ernesto Crivelli
,
Ruud A. de Mooij
,
J. E. J. De Vrijer
,
Mr. Shafik Hebous
, and
Mr. Alexander D Klemm
This paper aims to contribute to the European policy debate on corporate income tax reform in three ways. First, it takes a step back to review the performance of the CIT in Europe over the past several decades and the important role played by MNEs in European economies. Second, it analyses corporate tax spillovers in Europe with a focus on the channels and magnitudes of both profit shifting and CIT competition. Third, the paper examines the progress made in European CIT coordination and discusses reforms to strengthen the harmonization of corporate tax policies, in order to effectively reduce both tax competition and profit shifting.
Keywords:
Europe; International taxation; Corporate taxation; Multinational corporations; Corporate profits; Tax competition; MNE profits; revenue effect; EU code of conduct; effects of the CCCTB reform; profit shifting; Corporate income tax; Corporate taxes; Competition; Formula apportionment; Global