Moldova & IMF IMF Activities Publications Press Releases

 


 Russian

 

     Global Financial Stability Report
       Moving from Liquidity- to Growth-Driven Markets

       April 2014

The April 2014 Global Financial Stability Report (GFSR) assesses the challenging transitions that the global financial system is currently undergoing on the path to greater stability. Chapter 1 finds that these transitions are far from complete, and stability conditions are far from normal. For advanced and emerging market economies alike, a successful shift from liquidity-driven to growth-driven markets requires a number of elements. The report discusses these elements, including: a normalization of U.S. monetary policy that avoids financial stability risks; financial rebalancing in emerging market economies amid tighter external financial conditions and higher corporate debt levels; further progress in the euro area’s transition from fragmentation to robust integration; and the successful implementation of Abenomics in Japan to deliver sustained growth and stable inflation.

Download Full Text (PDF) PDF


Contents

Front Matter

Executive Summary
Preface

Chapter 1. Making the Transition from Liquidity- to Growth-Driven Markets

Chapter 1 finds that these transitions are far from complete, and stability conditions are far from normal. For advanced and emerging market economies alike, a successful shift from liquidity-driven to growth-driven markets requires a number of elements.
Boxes
    1.1 Deleveraging Trends in Selected Advanced Economies
    1.2 Is the Japanese Financial System Rebalancing, and What Are the Financial Stability Implications?
    1.3 Recent Periods of Turbulence in Emerging Market Economies
    1.4 Macroprudential Policy in the United States
    1.5 Financial Regulatory Reform: Can We Make It to the Finish Line?
    1.6 Rollout of Banking Union Is Progressing, but Challenges Remain
    1.7 European Union Bank Deleveraging
Tables
    1.1 Issuance Trends for U.S. High-Yield Bonds and Loans
  Data 1.1.1 Indebtedness and Leverage in Selected Advanced Economies
  Data 1.1.2 Reduction in Gross Debt Levels in Selected Advanced Economies from the 2009–13 Peak
  Data 1.2 Change in 10-Year Government Bond Yields
  Data 1.3 Correlation and Beta between the U.S. Term Premium in the United States and other Major Advanced Economies
  Data 1.4 Debt, Leverage, and Credit in Selected Emerging Market Economies
  Data 1.5 Change in Gross Debt Levels in Selected Emerging Market Economies
  Data 1.6 Summary of Indicators
    1.7 Yield Curve Data Sources
  Data 1.8 Correlation of Term Premium Estimates
  Data 1.9 Sensitivity to the U.S. Term Premium
  Data 1.10 Granger Causality
    1.11 Coverage of Firms by S&P Capital IQ
    1.12 Credit Variables Used in the Vector Autoregression Exercise
Figures
  Data 1.1 Global Financial Stability Map
  Data 1.1.1 Trends in Indebtedness in Selected Advanced Economies since the Crisis
  Data 1.2 Global Financial Stability Map: Assessment of Risks and Conditions
  Data 1.2.1 Japanese Financial System
  Data 1.3 Federal Reserve Lending Survey and Institute for Supply Managmenent New Orders: Green Shoots?
  Data 1.3.1 Asset Class Performance
  Data 1.4 U.S. Nonfinancial Coirporations: Credit Cycle Indicators
  Data 1.5 U.S. Nonfinancial Corporations: Key Financial Indicators
  Data 1.6 S&P 500 Price-to-Earnings Ratio
  Data 1.7 Decomposition of Equity Market Performance
  Data 1.8 U.S. High-Yield Bond and Leveraged Loan Issuance with Lower Standards
  Data 1.9 Leveraged Loans: Debt-to-EBITDA Ratio for Highly Leveraged Loans
  Data 1.10 U.S. Nonfinancial Corporations: Market-Based Financing
  Data 1.11 Federal Reserve Guidance Gaining Credibility?
  Data 1.12 Ten-year U.S. Treasury Rate Projectsions Based on Exit Scenario
  Data 1.13 Global Interest Rate Scenarios
  Data 1.14 Bond Flows to Emerging Market Economies and Domestic Credit in the Face of Tighter External Conditions
  Data 1.15 Private Sector Gross Debt and Credit in Selected Emerging Market Economies
  Data 1.16 Current Account Balance and Real Rates Now and Pre-Financial Crisis
  Data 1.17 Policy Space
  Data 1.18 Ratio of International Reserves to 2014 External Financing Requirements
  Data 1.19 Coverage of Current Account by Foreign Direct Investment
  Data 1.20 Corporate Debt in Emerging Markets
  Data 1.21 Emerging Market Bank Resilience
  Data 1.22 China: Wealth Management Products and Trusts
  Data 1.23 China: Selected Financial Sector Developments
  Data 1.24 Total and Retail Portfolio Flows to Selected Emerging Market and Other Economies
  Data 1.25 Share of Nonresidential Holdings of Local Currency Government Debt and Market Liquidity
    1.26 Summary of Selected Emerging Market Policy Actions since May 2013
  Data 1.27 Bank Credit and Market Indicators
  Data 1.28 Euro Area Bank Asset Quality
  Data 1.29 Euro Area Bank Profitability, Buffers, and Interest Rates
  Data 1.30 Assets of Banks in the Euro Area
    1.31 Simulated Cumulative Response of Bank Corporate Credit
  Data 1.32 Euro Area Write-Down Potential
  Data 1.33 Strength of Insolvency Procedures and Nonperforming Loans in Advanced Economies, 2013
  Data 1.34 Sources of Nonfinancial Corporate Credit, 2013:Q3
  Data 1.35 Term Premium Estimates under Alternative Affine Models
  Data 1.36 CEMBI Model Quarterly Spreads and Model Fits
    1.37 Vector Autoregression Model Residuals
    1.38 Comparing the Effects on Credit of One-Time Shocks: Cumulative Impulse Response Functions

Chapter 2. How Do Changes in the Investor Base and Financial Deepening Affect Emerging Market Economies?

Chapter 2 examines the role of the composition of the investor base and local financial systems for the stability of emerging market portfolio flows and asset prices. The chapter finds that the investor base has been tilting toward making capital flows more sensitive to global financial conditions. However, emerging market economies can improve their resilience by deepening their financial systems.
Boxes
    2.1 A Primer on Mutual Funds
Evolving Emerging Market Assets and Their Investor Bases
  Data 2.2 Financial Deepening in Emerging Markets
Identifying the Financial Stability Effects of Changes in the Investor Base and in Local Financial Systems
  Data 2.3 Investment Strategies of Institutional Investors
    2.4 Are Investors Differentiating among Emerging
Markets during Stress Episodes?
    2.5 Measuring Herding
Policy Implications and Conclusions
Tables
    2.1 Size of Global and Local Institutional Investors and Mutual Funds
    2.2 Role of Financial Deepening in Dampening the Impact of Global Financial Shocks on Asset Prices
    2.3 Summary of Methods and Results
    2.4 Sample Economies
    2.5 Definition of Variables Used in Estimations
    2.6 Local Macroeconomic Factors and Global Financial Shocks—The Effect on Asset Prices and Portfolio Flows
Figures
    2.1 Investor Base for Bonds in Emerging Markets
  Data 2.2 Trends in Capital Flows to Emerging Markets
  Data 2.3 Transformation of Investment Options in Emerging Markets
  Data 2.4 Emerging Markets: Shares in Economic Activities and Financial Markets
  Data 2.5 Allocation to Emerging Market Assets
    2.6 Integration of Emerging Market Assets into Global Markets
    2.7 Herding among Equity and Bond Funds Investing in Emerging Markets
    2.8 Mutual Fund and Institutional Investor Flows
    2.9 Cumulative Monthly Portfolio Flows to Emerging Markets from Different Types of Investors during Distress Episodes
    2.10 Flow Sensitivity to Global Financial Conditions by Fund Characteristics
    2.11 Drivers of Global and Dedicated Funds’ Flows into Emerging Markets around the Global Financial Crisis
    2.12 The Effects of Financial Deepening on the Sensitivities of Asset Returns to Global Risk Factor
  Data 2.13 Sensitivity of Local Yields to Portfolio Flows and Decline in Global Market Making

Chapter 3. How Big is the Implicit Subsidy for Banks Considered Too Important to Fail?

Chapter 3 looks at the issue of too-important-to-fail and provides new estimates of the implicit funding subsidy received by systemically important banks. The subsidy comes from the expectation that the government will support large banks if they get into distress. Although financial reforms have helped reduce this subsidy, it remains sizeable. Policymakers should aim to remove this advantage to protect taxpayers, ensure a level playing field, and promote financial stability.
Boxes
  Data 3.1 Cross-Border Banking Linkages
    3.2 Benefits and Risks of Large Banks
    3.3 Estimating Implicit Too-Important-to-Fail Subsidies
    3.4 Banks and Sovereign Linkages
 
    3.5 Recent Policy Initiatives Addressing the Too-Important-to-Fail Issue
    3.6 Higher Loss Absorbency for Systemically Important Banks in Australia
    3.2 The Ratings-Based Approach
Tables
    3.1 Summary of the Estimates of Implicit Subsidies
    3.2 Event Study
    3.3 Summary of Policy Measures
    3.4 Sample of Systemically Important Banks (as of 2012)
    3.5 Benchmark Credit-Rating Estimation Results to Explain the Overall Ratings
    3.6 Unit Rating Uplift: Robustness for Different Samples
Figures
    3.1 Effects of Too-Important-to-Fail Protection on a Simplified Bank Balance Sheet
  Data 3.2 Changes in the Number of Banks and the Size of the Banking Sector
    3.3 Total Assets of Large Banks
    3.4 Concentration in the Banking Sector
    3.5 Bond Spread Differential between Systemically Important Banks and Other Banks
    3.6 U.S. Banks’ Average Bond Duration
    3.7 Bond Spread Differential for U.S. Banks with Similar Leverage
    3.8 Mean Implicit Subsidy for Systemically Important Banks Estimated with the Contingent Claims Analysis Approach
    3.9 Implicit Subsidy by Type of Bank in the United States
    3.10 Average Subsidies Derived from Credit Ratings
    3.11 Subsidies Derived from Credit Ratings for a Bank Just Below Investment Grade
    3.12 Implicit Subsidy Values for Global Systemically Important Banks
    3.13 Event Tree of Government Policies to Deal with Systemically Important Banks

Statistical Appendix

 
  

 Source