|
Preface
(457KB pdf file) |
| |
Joint
Foreword to World Economic Outlook and Global Financial
Stability Report
Even with determined steps to return the
financial sector to health and continued use of
macroeconomic policy levers to support aggregate
demand, global activity is projected to
contract by 1.3 percent in 2009. This represents
the deepest post–World War II recession by far.
Moreover, the downturn is truly global: output
per capita is projected to decline in countries
representing three-quarters of the global economy.
Growth is projected to reemerge in 2010,
but at 1.9 percent it would be sluggish relative to
past recoveries.
These projections are based on an assessment
that financial market stabilization will take
longer than previously envisaged, even with
strong efforts by policymakers. Thus, financial
conditions in the mature markets are projected
to improve only slowly, as insolvency concerns
are diminished by greater clarity over losses
on bad assets and injections of public capital,
and counterparty risks and market volatility
are reduced. The April 2009 issue of the Global
Financial Stability Report (GFSR) estimates that,
subject to a number of assumptions, credit writedowns
on U.S.-originated assets by all holders
since the start of the crisis will total $2.7 trillion,
compared with an estimate of $2.2 trillion in
the January 2009 GFSR Update.
Including assets
originated in other mature market economies,
total write-downs could reach $4 trillion over
the next two years, approximately two-thirds of
which may be taken by banks. Overall credit to
the private sector in the advanced economies
is thus expected to decline during both 2009
and 2010. Because of the acute degree of stress
in mature markets and its concentration in the
banking system, capital flows to emerging economies
will remain very low...
|
| |
| Executive
Summary (752KB pdf file) |
|
| Chapter
I. Stabilizing the Global Financial System and Mitigating
Spillover Risks |
|---|
| Full
Text | Boxes |
Figures | Tables |
Systemic risks remain high and the adverse feedback loop between the financial system and the real economy
has yet to be arrested, despite the wide range of policy actions and some limited improvement in market
functioning. Further effective government action—particularly geared toward cleansing balance sheets and
strengthening institutions—will be required to stabilize the global financial system and to provide the
foundation for a sustainable economic recovery. The banking system needs additional equity to absorb further
writedowns as credit deteriorates, and risks are broadening to encompass nonbank institutions. The crisis has
spread to emerging markets, with the collapse of international financing, posing challenges to corporates,
households, and banks as well as raising sovereign risk. The global policy response, including the IMF’s
enhanced lending framework, should help to mitigate crisis risks from deepening. There remains considerable
scope for further public commitments in larger economies, but extensive provision of financing and the transfer
of balance sheet risk from the private to the public sector have increased tail risks for certain mature market
sovereigns.
|
| |
A. Global Financial Stability Map |
| |
B. Global
Deleveraging and its Consequences |
| |
C. The Crisis has Engulfed
Emerging Markets |
| |
D. The Deteriorating Outlook for
Household and Corporate Defaults in Mature Markets and
Implications for the Financial System |
| |
E. Stability Risks and the
Effectiveness of the Policy Response |
| |
F. Costs of Official Support,
Potential Spillovers, and Policy Risks |
| |
Annex 1.1. Global Financial
Stability Map: Construction and Methodology |
| |
Annex 1.2. Predicting Private
"Other Investment" Flows and Credit Growth in
Emerging Markets |
| |
Annex 1.3. Spillovers Between
Foreign Banks and Emerging Market Sovereigns |
| |
Annex 1.4. Debt Restructuring in
Systemic Crises |
| |
Annex 1.5. Methodology for
Estimating Financial Writedowns |
| |
References |
|
| Chapter
II. Assessing the Systemic Implications of Financial
Linkages |
| Full
Text |
Boxes |
Figures | Press
Points |
The rise in the complexity and globalization of financial services has contributed to stronger
interconnections or linkages. While more extensive linkages contribute to economic
growth by smoothing credit allocation and allowing greater risk diversification, they also
increase the potential for disruptions to spread swiftly across markets and borders. In
addition, financial complexity has enabled risk transfers that were not fully recognized by financial
regulators or by institutions themselves, complicating the assessment of counterparty risk, risk
management, and policy responses. Thus the importance of assessing the systemic implications of
financial linkages.
The current crisis has highlighted how systemic linkages can arise not just from financial institutions’
solvency concerns but also from liquidity squeezes and other stress events. This chapter
illustrates the type of methodologies that can provide some prospective metrics to facilitate discussions
on systemic linkages and, specifically, the “too-connected-to-fail” problem, thereby contributing
to enhanced systemically focused surveillance and regulation. By contrast, Chapter 3 presents
other methodologies that examine systemic risk by looking at the conditions under which financial
institutions experience simultaneous stressful events.
|
| |
Four Methods of Assessing
Systemic Linkages |
| |
How Regulators Assess Systemic
Linkages |
| |
Policy Reflections |
| |
Annex 2.1. Default Intensity
Model Estimation |
| |
References |
|
| Chapter
III. Detecting Systemic Risk |
| Full
Text |
Boxes | Figures | Press
Points |
The current crisis demonstrates the need for tools to detect systemic risks. Given that
there are many facets and causes of such risks, this chapter presents a range of measures
that can be used to discern when events become systemic. The chapter first
reviews the standard financial soundness indicators’ ability to highlight those financial
institutions (FIs) that proved to be vulnerable in the current crisis. For the sample of global FIs
examined, leverage ratios and return-on-assets proved the most reliable indicators, while capital
asset ratios and nonperforming loan data lacked predictive power.
The chapter then proceeds to examine several techniques to analyze forward-looking market
data for groups of FIs in order to detect whether and when systemic risks became apparent.
Market-based measures that are able to capture tail risks seem to have given forward indications
of impending stress for the overall financial system. Chapter 2 provides a slightly different
approach to systemic risk by examining interlinkages, both direct and indirect, between
selected FIs.
|
| |
What Constitutes
"Systemic" Risk? |
| |
"Fundamental"
Characteristics of Intervened and Nonintervened Financial
Institutions |
| |
Market Perceptions of Risk of
Financial Institutions |
| |
Identifying Systemic Risks
Through Regime Shifts |
| |
Role of Global Market Conditions
During Episodes of Stress |
| |
Policy Implications |
| |
Conclusions |
| |
Annex 3.1. Financial Soundness
Indicators |
| |
Annex 3.2. Groups of Selected
Financial Institutions |
| |
Annex 3.3. List of Intervened
Financial Institutions |
| |
References |
|
| Glossary
(644KB pdf file) |
|
| Annex:
Summing Up by the Acting Chair |
|
| Statistical
Appendix(1259KB pdf file) |
| Key Financial
Centers: Figures
| Tables |
| Emerging
Markets: Figures
| Tables |
| Financial
Soundness Indicators: Tables |
|
| Boxes |
| |
|
1.1 |
Near-Term Financial Stability Challenges and
Policy Priorities |
|
|
Data
Data |
1.2 |
Cross-Border Exposures and Financial
Interlinkages within Europe |
|
|
|
1.3 |
Effects of the Global Financial Crisis on
Trade Finance: The Case of Sub-Saharan Africa |
|
|
Data
Data |
1.4 |
Enhanced IMF Lending Capabilities and
Implications for Emerging Markets |
| |
Data |
1.5 |
Modeling Corporate Bond Spreads: A Capital
Flows Framework |
|
|
Data
|
1.6 |
Recent Unconventional Measures of Selected
Major Central Banks |
|
|
|
1.7 |
Forecasts for Charge-Offs on U.S. Bank Loans |
| |
|
2.1 |
Network Simulations of Credit and Liquidity
Shocks |
|
|
2.2 |
Quantile Analysis |
|
|
2.3 |
Default Intensity Model Specification |
|
|
2.4 |
Basics of Over-the-Counter Counterparty
Credit Risk Mitigation |
|
|
2.5 |
A Central Counterparty as a Mitigant to
Counterparty Risk in the Credit Default Swap Markets |
| Chart |
Data |
3.1 |
Modeling Risk-Adjusted Balance Sheets: The
Contingent Claims Approach |
Chart
Chart |
Data
Data |
3.2 |
Option-iPoD Measures of Risk Across
Financial Institutions |
| |
|
3.3 |
Higher Moments and Multivariate Dependence of
Implied Volatilities from Equity Options as Measures of
Systemic Risk |
| |
|
3.4 |
The Consistent Information Multivariate
Density Optimizing Approach |
| Chart |
Data |
3.5 |
Spillovers to Emerging Markets: A
Multivariate GARCH Analysis |
Chart
Chart |
Data
Data |
3.6 |
The Transformation of Bank Risk into
Sovereign Risk—The Tale of Credit Default Swaps |
|
| Tables |
| Chart |
Data |
1.1 |
Macro and Financial Indicators in
Selected Emerging Market Countries |
| Chart |
Data |
1.2 |
Potential Writedowns and Capital Needs for
Emerging Market Banks by Region |
| Chart |
Data |
1.3 |
Estimates of Financial Sector Potential
Writedowns (2007-10) by Geographic Origin of Assets as of
April 2009 |
| Chart |
Data |
1.4 |
Bank Equity Requirement Analysis |
| Chart |
|
1.5 |
Policy Measures and Effectiveness |
| Chart |
|
1.6 |
Tentative Easing in Credit Conditions |
| Chart |
Data |
1.7 |
Bank Wholesale Financing and Public Funding
Support |
| Chart |
Data |
1.8 |
Public Debt and Stabilization Costs |
| Chart |
Data |
1.9 |
Mature Market Sovereign Credit Default Swap
Spreads and Debt Outstanding |
| Chart |
Data |
1.10 |
Announced Sovereign Guaranteed Bank Debt |
| Chart |
|
1.11 |
Changes in Risks and Conditions Since the
October 2008 Global Financial Stability Report |
| Chart |
Data |
1.12 |
Distress Dependence Matrices: Sovereigns and
Banks |
| Chart |
Data |
1.13 |
Estimated Bank Portfolio Composition by Type
of Asset |
| Chart |
Data |
1.14 |
Estimated Bank Portfolio Composition by
Origin of Assets |
| Chart |
Data |
1.15 |
Estimated Distribution of Bank Writedowns by
Bank Domicile and Cumulative Loss Rates |
| |
|
2.1 |
Taxonomy of Financial Linkages Models |
| |
|
2.2 |
Simulation 1 Results (Credit Channel) |
| |
|
2.3 |
Post-Simulation 1 Capital Losses |
| |
|
2.4 |
Simulation 2 Results (Credit and Funding
Channel) |
| |
|
2.5 |
Post-Simulation 2 Capital Losses |
| |
|
2.6 |
Conditional Co-Risk Estimates, March 2008 |
| |
|
2.7 |
Conditional Co-Risk Estimates, September 2008 |
| |
|
2.8 |
Distress Dependence Matrix |
| |
|
2.9 |
Summary of Various Methodologies: Limitations
and Policy Implications |
| |
|
3.1 |
Selected Indicators on Fundamental
Characteristics in Financial Institutions |
| |
|
3.2 |
Taxonomy of Credit Risk Models |
| |
|
3.3 |
Correlations Among 45 Financial Institutions
During Different Stress Periods |
| |
|
3.4 |
Cluster Analysis |
| |
|
3.5 |
Summary of Various Methodologies: Limitations
and Policy Implications |
|
| Figures |
|
|
Data |
1.1 |
Global Financial Stability Map |
|
|
Data |
1.2 |
Heat Map: Developments in Systemic Asset
Classes |
|
|
Data |
1.3 |
Ratio of Debt to GDP Among Selected Advanced
Economies |
|
|
Data |
1.4 |
Bank Credit to the Private Sector |
|
|
Data |
1.5 |
Private Sector Credit Growth |
|
|
Data |
1.6 |
Bank for International Settlements Reporting
Banks: Cross-Border Liabilities, Exchange-Rate-Adjusted
Changes |
|
|
Data |
1.7 |
Bank for International Settlements Reporting
Countries: Cross-Border Assets as a Proportion of Total
Assets |
|
|
Data |
1.8 |
Aggregate Emerging Markets Bond Index Global
Spread |
|
|
Data |
1.9 |
Net Foreign Equity Investment in Emerging
Economies |
|
|
Data |
1.10 |
Emerging Market Hedge Funds: Estimated Assets
and Net Asset Flows |
|
|
Data |
1.11 |
Heat Map: Developments in Emerging Market
Systemic Asset Classes |
|
|
Data |
1.12 |
Emerging Europe: Real Credit Growth to the
Private Sector and Output |
|
|
Data |
1.13 |
Emerging Market Performance of Credit Default
Swap Spreads and Equity Prices |
|
|
Data |
1.14 |
Cross-Currency Basis Swap Spreads |
|
|
Data |
1.15 |
Emerging Market Real Credit Growth |
|
|
Data |
1.16 |
External Debt Refinancing Needs |
|
|
Data |
1.17 |
Emerging Market Corporate Bond Spreads |
|
|
Data |
1.18 |
Aggregate Emerging Market Bond Index Global
Spread |
|
|
Data |
1.19 |
Distress Dependence between Emerging Market
Sovereigns and Advanced Country Banks |
|
|
Data |
1.20 |
U.S. Loan Charge-Off Rates: Baseline |
|
|
Data |
1.21 |
Delinquency Rate of U.S. Residential Mortgage
Loans |
|
|
Data |
1.22 |
Spreads on Commercial Mortgage-Backed
Securities |
|
|
Data |
1.23 |
Spreads on Consumer Credit Asset-Backed
Securities |
|
|
Data |
1.24 |
Global Corporate Default Rates |
|
|
Data |
1.25 |
Average Recovery Rates on Defaulted U.S.
Bonds |
|
|
Data |
1.26 |
Corporate Credit Default Swap Spreads |
|
|
Data |
1.27 |
Estimates of Economic Growth and Financial
Sector Writedowns |
|
|
Data |
1.28 |
U.S. and European Bank and Insurance Company
Market Capitalization, Writedowns, and Capital Infusions |
|
|
Data |
1.29 |
U.S. and European (including U.K.) Bank
Earnings and Writedowns |
|
|
Data |
1.30 |
Commercial Bank Loan Charge-Offs |
|
|
Data |
1.31 |
European Securitization Gross Issuance |
|
|
Data |
1.32 |
Refinancing Gap of Global Banks |
|
|
Data |
1.33 |
Pension Funds of Large U.S. and European
Companies: Estimated Funding Levels |
|
|
Data |
1.34 |
Insurance Sector Credit Default Swaps Spreads |
|
|
Data |
1.35 |
Large Economy Credit Default Swap Spreads |
|
|
Data |
1.36 |
Benchmark Five-Year Government Bonds |
|
|
Data |
1.37 |
Swap Spreads of Government-Guaranteed Bonds |
|
|
Data
Data
Data
Data
Data |
1.38 |
Global Financial Stability Map: Monetary and
Financial Conditions |
|
|
Data
Data
Data
Data |
1.39 |
Global Financial Stability Map: Risk Appetite |
|
|
Data
Data
Data
Data
Data
Data |
1.40 |
Global Financial Stability Map: Macroeconomic
Risks |
|
|
Data
Data
Data
Data
Data
Data |
1.41 |
Global Financial Stability Map: Emerging
Market Risks |
|
|
Data
Data
Data
Data
Data
Data |
1.42 |
Global Financial Stability Map: Credit Risks |
|
|
Data
Data
Data
Data
Data
Data |
1.43 |
Global Financial Stability Map: Market and
Liquidity Risks |
|
|
Data |
1.44 |
Impulse Responses |
|
|
Data |
1.45 |
Net Private Other Investment Flows to
Emerging Markets |
|
|
Data |
1.46 |
Emerging Market Real Credit Growth |
|
|
Data |
1.47 |
Emerging Market GDP Growth |
|
|
Data |
1.48 |
Default Probabilities Implied by Credit
Default Swap Pricing |
|
|
Data |
1.49 |
Distress Dependence |
|
|
2.1 |
Network Analysis: A Diagrammatic
Representation of Systemic Interbank Exposures |
| Chart |
Data |
2.2 |
Network Analysis: Number of Induced Failures |
| Chart |
Data |
2.3 |
Network Analysis: Country-by-Country
Vulnerability Level |
|
|
2.4 |
Network Analysis: Contagion Path Triggered by
the U.K. Failure |
| Chart |
Data |
2.5 |
AIG and Lehman Brothers Default Risk
Codependence |
|
|
2.6 |
A Diagrammatic Depiction of Co-Risk Feedbacks |
|
|
2.7 |
U.S. and European Banks: Tail-Risk Dependence
Devised from Equity Option Implied Volatility, 2006-08 |
|
|
2.8 |
Legend of Trivariate Dependence Simplex |
|
|
2.9 |
Annual Number of Corporate and Banking
Defaults |
|
|
2.10 |
Actual and Fitted Economy Default Rates |
|
|
2.11 |
Default Rate Probability and Number of
Defaults |
|
|
2.12 |
Quarterly One-Year-Ahead Forecast
Value-at-Risk at 95 Percent Level |
|
|
2.13 |
Capital Adequacy Ratios (CAR) After
Hypothetical Credit Shocks |
|
|
2.14 |
Basic Structure of the Systemic Risk Monitor
Model |
|
|
2.15 |
RAMSI Framework |
| Chart |
Data |
3.1 |
Capital-to-Assets Ratio |
| Chart |
Data |
3.2 |
Ratio of Short-Term Debt to Total Debt |
| Chart |
Data |
3.3 |
Return on Assets |
|
|
3.4 |
Dendrogram |
| Chart |
Data |
3.5 |
U.S. and European Banks: Joint Tail Risk of
Implied Volatilities |
| Chart |
Data |
3.6 |
Higher Moments and Multivariate Dependence of
Implied Equity Volatility |
| Chart |
Data |
3.7 |
Joint Probability of Distress (JPoD) and
Banking Stability Index (BSI): Core 2 Group |
| Chart |
Data |
3.8 |
Joint Probability of Distress (JPoD) and
Banking Stability Index (BSI): By Geographic Region |
| Chart |
Data |
3.9 |
Daily Percentage Change: Joint and Average
Probability of Distress, Core 2 Group |
| Chart |
Data |
3.10 |
Probability of Cascade Effects |
| Chart |
Data |
3.11 |
Markov-Regime Switching ARCH Model: Joint
Probability of Distress and Banking Stability Index |
| Chart |
Data |
3.12 |
Euro-Dollar Forex Swap |
| Chart |
Data |
3.13 |
Markov-Switching ARCH Model of VIX |
| Chart |
Data |
3.14 |
Markov-Switching ARCH Model of TED Spread |
| Chart |
Data |
3.15 |
Markov-Switching ARCH Model of VIX, TED
Spread, and Core 2 Banking Stability Index |
|
| Statistical
Appendix |
| Key
Financial Centers |
| Figures |
| Chart |
Data |
1. |
Major Net Exporters and Importers of Capital
in 2008 |
| Chart |
Data |
2. |
Exchange Rates: Selected Major Industrial
Countries |
| Chart |
Data |
3. |
United States: Yields on Corporate and
Treasury Bonds |
| Chart |
Data |
4. |
Selected Spreads |
| Chart |
Data |
5. |
Nonfinancial Corporate Credit Spreads |
| Chart |
Data |
6. |
Equity Markets: Price Indexes |
| Chart |
Data |
7. |
Implied and Historical Volatility in Equity
Markets |
| Chart |
Data |
8. |
Historical Volatility of Government Bond
Yields and Bond Returns for Selected Countries |
| Chart |
Data |
9. |
Twelve-Month Forward Price/Earnings Ratios |
| Chart |
Data |
10. |
Flows into U.S.-Based Equity Funds |
| Chart |
Data |
11. |
United States: Corporate Bond Market |
| Chart |
Data |
12. |
Europe: Corporate Bond Market |
| Chart |
Data |
13. |
United States: Commercial Paper Market |
| Chart |
Data |
14. |
United States: Asset-Backed Securities |
|
| Tables |
|
|
Data |
1. |
Global Capital Flows: Inflows and Outflows |
|
|
Data |
2. |
Global Capital Flows: Amounts Outstanding and
Net Issues of International Debt Securities by Currency of
Issue and Signed International Syndicated Credit Facilities
by Nationality of Borrower |
|
|
Data |
3. |
Selected Indicators on the Size of the
Capital Markets, 2007 |
|
|
Data |
4. |
Global Over-the-Counter Derivatives Markets:
Notional Amounts and Gross Market Values of Outstanding
Contracts |
|
|
Data |
5. |
Global Over-the-Counter Derivatives Markets:
Notional Amounts and Gross Market Values of Outstanding
Contracts by Counterparty, Remaining Maturity, and Currency |
|
|
Data |
6. |
Exchange-Traded Derivative Financial
Instruments: Notional Principal Amounts Outstanding and
Annual Turnover |
|
|
Data |
7. |
United States: Sectoral Balance Sheets |
|
|
Data |
8. |
Japan: Sectoral Balance Sheets |
|
|
Data |
9. |
Europe: Sectoral Balance Sheets |
|
| Emerging
Markets |
| Figures |
| Chart |
Data |
15. |
Emerging Market Volatility Measures |
| Chart |
Data |
16. |
Emerging Market Debt Cross-Correlation
Measures |
| |
| Tables |
| |
Data |
10. |
Equity Market Indices |
| |
Data |
11. |
Foreign Exchange Rates |
| |
Data |
12. |
Emerging Market Bond Index: EMBI Global Total
Returns Index |
| |
Data |
13. |
Emerging Market Bond Index: EMBI Global Yield
Spreads |
| |
Data |
14. |
Emerging Market External Financing: Total
Bonds, Equities, and Loans |
| |
Data |
15. |
Emerging Market External Financing: Bond
Issuance |
| |
Data |
16. |
Emerging Market External Financing: Equity
Issuance |
| |
Data |
17. |
Emerging Market External Financing: Loan
Syndication |
| |
Data |
18. |
Equity Valuation Measures: Dividend-Yield
Ratios |
| |
Data |
19. |
Equity Valuation Measures: Price-to-Book
Ratios |
| |
Data |
20. |
Equity Valuation Measures: Price/Earnings
Ratios |
| |
Data |
21. |
United States: Mutual Fund Flows |
|
| Financial
Soundness Indicators |
| Tables |
| |
Data |
22. |
Bank Regulatory Capital to Risk-Weighted
Assets |
| |
Data |
23. |
Bank Capital to Assets |
| |
Data |
24. |
Bank Nonperforming Loans to Total Loans |
| |
Data |
25. |
Bank Provisions to Nonperforming Loans |
| |
Data |
26. |
Bank Return on Assets |
| |
Data |
27. |
Bank Return on Equity |
|
The following
symbols have been used throughout this volume:
. . . to indicate that data are not available;
—— to indicate that the figure is zero or less than half
the final digit shown, or that the item does not exist;
- between years or months (for example, 1997-99 or
January-June) to indicate the years or months covered,
including the beginning and ending years or months;
/ between years (for example, 1998/99) to indicate a fiscal
or financial year.
"Billion" means a thousand million;
"trillion" means a thousand billion.
"Basis points" refer to hundredths of 1 percentage
point (for example, 25 basis points are equivalent to 1/4 of
1 percentage point). "n.a." means not applicable.
Minor discrepancies between constituent figures and totals
are due to rounding.
As used in this volume the term "country" does not
in all cases refer to a territorial entity that is a state
as understood by international law and practice. As used
here, the term also covers some territorial entities that
are not states but for which statistical data are maintained
on a separate and independent basis. |
