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Business and Economics > Finance: General

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Cover Selected Issues Papers
Vulnerabilities and Risks in Denmark’s Nonbank Financial Institutions: Denmark
Burcu Hacibedel
and
Mariusz Jarmuzek
Denmark’s nonbank financial institutions (NBFI) sector has substantially increased in size since the Global Financial Crisis (GFC), becoming an important part of the financial system. Systemic risk associated with NBFIs have been contained but warrants close monitoring, especially regarding leverage, liquidity buffers, and interconnectedness. There are important mitigating factors that reduce systemic risk stemming from NBFIs in Denmark. Strengthening of systemic risk assessment and policy framework for NBFIs is warranted and could include developing a systemic risk assessment framework covering both banks and NBFIs and an ensuing system-wide stress testing framework.
Keywords:
Denmark; balance sheet analysis; non-bank financial institutions; systemic risk assessment; NBFI sector; Denmark's nonbank financial institutions; D. mitigating factor; covered bond bond market; asset liability management risk; Nonbank financial institutions; Covered bonds; Mutual funds; Systemic risk; Global
Cover Policy Papers
Initial Considerations For The Review Of Charges And The Surcharge Policy
International Monetary Fund. Policy Development and Review Dept.
On October 11, 2024, the IMF’s Executive Board concluded the Review of Charges and the Surcharge Policy. The review is part of a broader ongoing effort to ensure that the IMF’s lending policies remain fit for purpose to meet the evolving needs of the membership. Charges and surcharges are important elements of the IMF’s cooperative lending and risk-management framework, where all members contribute and all can benefit from support when needed. Together, they cover lending intermediation expenses, help accumulate reserves to protect against financial risks, and provide incentives for prudent and temporary borrowing. This provides a strong financial foundation that allows the IMF to extend vital balance of payments support on affordable terms to member countries when they need it most.



Against the backdrop of a challenging economic environment and high global interest rates, the Executive Board reached consensus on a comprehensive package of reforms that substantially reduces the cost of borrowing for members while safeguarding the IMF's financial capacity to support countries in need. The approved measures will lower IMF borrowing costs by about US$1.2 billion annually or reduce payments on the margin of the rate of charge as well as surcharges on average by 36 percent. The number of countries subject to surcharges in fiscal year 2026 is expected to fall from 20 to 13.



Key reforms include a reduction in the margin for the rate of charge, an increase in the threshold for level-based surcharges, a reduction in rate for time-based surcharges, an alignment of thresholds for commitment fees with annual and cumulative access limits for GRA lending facilities, and institution of regular reviews of surcharges.



The series of three papers informed the Executive Board’s first and second informal engagements (July and September 2024) and the formal meeting (October 2024) on this review.
Keywords:
General Resources Account; Charges; Margin for the basic rate of charge; Surcharges; Commitment Fees; Precautionary Balances; Income; multilayered framework; fund arrangement; surcharge rate; intermediation cost; fund's liquidity; borrowing cost; Credit; SDR interest rate; Balance of payments need; Credit risk; Global
Cover IMF Staff Country Reports
Denmark: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper discusses the macroeconomic impact of the pharmaceutical sector. The analysis focuses on Novo Nordisk, the leading pharmaceutical company in Denmark, and its productivity impact on the rest of the economy. Empirical evidence suggests only weak correlations between productivity shocks at Novo Nordisk and overall economic growth, as well as between Novo Nordisk’s productivity and that of other firms. The findings suggest there is limited risk that Denmark’s booming pharmaceutical company would become its “Nokia.” Although the pharmaceutical sector will be a key driver of growth, most of its production occurs overseas under Danish ownership. As a result, its linkages with the rest of the domestic economy, in terms of employment and supply chains, are somewhat limited. The empirical results also indicate limited spillover effects through productivity channels. However, the empirical results may underestimate the influence of Novo Nordisk due to limited data.
Keywords:
mitigating factor; productivity shock; E. policy option; Policy consideration; shocks to Novo Nordisk; energy firm; covered bond bond market; Nonbank financial institutions; Labor productivity; Covered bonds; Systemic risk assessment; Productivity; Global
Cover Technical Notes and Manuals
The Case for (and Against) Asset Management Companies in Banking Crises
Miguel A Otero Fernandez
,
Jaime Ponce
,
Marc C Dobler
, and
Tomoaki Hayashi
This technical note explores the advantages and disadvantages of establishing state-sponsored centralized asset management companies (AMCs) to address high levels of bank asset distress during financial crises. AMCs may offer potential benefits like mitigating downward price spirals or achieving efficiency gains by consolidating creditor claims and scarce expertise. However, significant risks and costs warrant careful consideration. These include extreme uncertainties in asset valuation and substantial operational and financial risks. Past international experiences highlight the dangers of underestimating these risks, potentially turning the AMC into a mechanism for deferring losses to taxpayers, rather than minimizing them, and ultimately increasing long-term public costs and moral hazard. This technical note emphasizes these trade-offs and discusses crucial design elements for effective AMCs: a clear mandate, transfer pricing that prudently reflects asset values and disposal costs, strong governance with independent management, and efficient operational processes promoting transparency and accountability.
Keywords:
Asset Management Company (AMC); Bank resolution; Financial Crisis; Financial regulation and supervision; Problem Asset Resolution; Non-performing Loans; Bank restructuring.; asset price spiral; centralized asset management companies; give borrower; AMC need; AMC debt; bank asset distress; resolution strategy; recovery value; asset characteristic; Asset management companies; Distressed assets; Nonperforming loans; Asset valuation; Loans; Global
Cover IMF Staff Country Reports
Luxembourg: Financial Sector Assessment Program—Technical Note on Investment Funds: Regulation and Supervision
International Monetary Fund. Monetary and Capital Markets Department
This paper highlights a technical note on Investment Funds: Regulation and Supervision for the Luxembourg Financial Sector Assessment Program (FSAP). Commission de Surveillance du Secteur Financier (CSSF) has a robust supervisory framework with substantive improvements since the last FSAP, but some areas could be further strengthened. Given the structural importance of delegation for Luxembourg domiciled funds, initiating an on-site inspection framework for delegates outside Luxembourg assumes importance. CSSF’s enforcement framework could be substantially improved through enhancements on four key fronts. CSSF could improve the domestic regulatory framework on areas such as winding up, valuation, and approach to indirectly regulated Alternative Investment Funds AIFs. Given Luxembourg’s position as the domicile of EU’s largest IF sector, CSSF should actively continue to promote and contribute to EU level reforms on various topics. With respect to liquidity risks, CSSF should continue to actively contribute to the European Securities and Markets Authority’s (ESMA) guidance on the use of Liquidity Management Tools and to engage closely with ESMA and the EU Commission on the proposed revision of the Eligible Assets Directive.
Keywords:
managers directive; investment fund manager; Banque Centrale du Luxembourg; EU requirement; investment fund Sector; Mutual funds; Financial sector stability; Financial Sector Assessment Program; Systemic risk; Liquidity risk; Europe; Global
Cover IMF Staff Country Reports
Nordic-Baltic Regional Report: Technical Assistance Report-Nordic-Baltic Technical Assistance Project Financial Flows Analysis, AML/CFT Supervision, and Financial Stability
International Monetary Fund. Legal Dept.
This paper presents a regional report on Nordic-Baltic technical assistance project: financial flows analysis, Anti-Money Laundering and combating the Financing of Terrorism (AML/CFT) Supervision, and Financial Stability. The purpose of the project is to conduct an analysis of cross-border ML threats and vulnerabilities in the Nordic-Baltic region—encompassing Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway, and Sweden (the Nordic-Baltic Constituency or NBC)—and issue a final report containing recommendations for mitigating the potential risks. The financial flows analysis presented in this report is based on the IMF staff’s analysis of cross-border payments data. Six out of the eight Nordic-Baltic countries have seen an increase in aggregate flows since 2013. Monitoring cross-border financial flows provides countries with a deeper understanding of their external ML threat environment and evolving cross-border related risks they are facing. Leveraging broader analysis of ML/TF cross-border risk, the Nordic-Baltic countries should develop their own understanding of higher-risk countries reflecting country-specific ML/TF threats.
Keywords:
TF risk assessment; colleges participation; TF risk; EU Anti-Money Laundering Authority; supervisory cooperation; information Sharin; Anti-money laundering and combating the financing of terrorism (AML/CFT); Virtual currencies; Correspondent banking; Internal controls; Financial sector stability; Baltics; Global
Cover IMF Working Papers
The Right Tool for the Job? Mortgage Distress and Personal Insolvency during the European Debt Crisis
Mr. Wolfgang Bergthaler
,
Jose M Garrido
, and
Anjum Rosha
The European debt crisis in the early to mid 2010s brought to the fore the issue of household debt distress: in the countries affected, widespread over-indebdtedness resulted in serious financial and social challenges. The crisis was primarily a mortgage debt crisis, but in several cases, the legal response was based on the introduction of personal insolvency procedures. This paper examines the challenges in designing and implementing legal reforms in this area to promote a better understanding of the main considerations in resolving personal insolvency and distressed mortgage debt in the context of crises. Lessons from the European crisis may prove valuable when dealing with the aftermath of the COVID-19 pandemic and the war in Ukraine on household debt distress.
Keywords:
consumer insolvency; household debt; mortgage debt; consumer debt; household debt distress; mortgage debt crisis; B. mortgage debt distress; mortgage distress; Solvency; Mortgages; Corporate insolvency; Debt sustainability; Debt settlement; Europe
Cover IMF Working Papers
Derivative Margin Calls: A New Driver of MMF Flows
Maddalena Ghio
,
Linda Rousova
,
Dilyara Salakhova
, and
German Villegas Bauer
During the March 2020 market turmoil, euro area money-market funds (MMFs) experienced significant outflows, reaching almost 8% of assets under management. This paper investigates whether the volatility in MMF flows was driven by investors’ liquidity needs related to derivative margin payments. We combine three highly granular unique data sources (EMIR data for derivatives, SHSS data for investor holdings of MMFs and Refinitiv Lipper data for daily MMF flows) to construct a daily fund-level panel dataset spanning from February to April 2020. We estimate the effects of variation margin paid and received by the largest holders of EURdenominated MMFs on flows of these MMFs. The main findings suggest that variation margin payments faced by some investors holding MMFs were an important driver of the flows of EUR-denominated MMFs domiciled in euro area.
Keywords:
liquidity risk; money market funds; big data; interconnectedness; non-bank financial intermediaries.; EUR-denominated MMFs; derivative margin calls; MMF flow; variation margin payment; VM flow; Stocks; Liquidity; Mutual funds; Nonbank financial institutions; Pension spending; Global; IMF working paper research Department; derivatives reform; margin payment; Derivative markets
Cover IMF Staff Country Reports
Ireland: Financial Sector Assessment Program-Technical Note on Anti-Money Laundering/Combating the Financing of Terrorism
International Monetary Fund. Monetary and Capital Markets Department
While domestic money laundering (ML) threats are well understood by the authorities, Ireland faces significant and increasing threats from foreign criminal proceeds. As a growing international financial center,1 Ireland is exposed to inherent transnational money laundering and terrorist financing (ML/TF) related risks. The ML risks facing Ireland include illicit proceeds from foreign crimes (e.g., corruption, tax crimes). Retail and international banks, trust and company service providers (TCSPs),2 lawyers, and accountants are medium to high-risk for ML, while virtual asset service providers (VASPs) pose emerging risks. Brexit, the recent move of international banks to Dublin, and the COVID-19 pandemic increased the money laundering risks faced by Ireland. The Central Bank of Ireland (Central Bank) nevertheless has demonstrated a deep and robust experience in assessing and understanding their domestic ML/TF risks; however, an increased focus on risks related to transnational illicit financial flows is required. A thematic risk assessment undertaken by the Anti-Money Laundering Steering Committee (AMLSC) of international ML/TF risks would enhance the authorities’ risk understanding and is key to effective response to the rapid financial sector growth. Introducing data analytics tools, including machine learning to leverage potentially available big data on cross-border payments, would allow for efficient detection of emerging risks. The results of this assessment should be published to improve the understanding of transnational ML/TF risks and feed into the anti-money laundering and combating the financing of terrorism (AML/CFT) policy priorities going forward.
Keywords:
TF risk; TF threat; supervisory approach; central bank of Ireland; risk assessment; fund FSAP team; Anti-money laundering and combating the financing of terrorism (AML/CFT); Financial sector; Financial Sector Assessment Program; Terrorism financing; Tax evasion; Global
Cover IMF Staff Country Reports
Ireland: Financial Sector Assessment Program-Technical Note on Macroprudential Policy Framework and Tools
International Monetary Fund. Monetary and Capital Markets Department
Ireland is a small open economy that is part of a monetary union and has a major financial system. Within the Euro Area (EA), Ireland comprises a relatively small proportion of aggregate GDP (3.4 percent), of which a significant portion is attributable to foreign-owned multinational enterprises (MNEs). Yet, the Irish financial system holds assets of EUR 7.9 trillion, over 18 times GDP. Since monetary policy is carried out by the European Central Bank (ECB) for the entire EA, macroprudential policy has the potential to play a critical stabilizing role for the Irish financial system.
Keywords:
bank funding; bank lending; CRE market vulnerability; lending to SME; bank sector; commercial real estate; Housing prices; Mortgages; Financial sector stability; Macroprudential policy instruments; Credit; Global