Global Financial Stability Report

Navigating the Financial Challenges Ahead

September 2009

World Economic and Financial Surveys Navigating the Financial Challenges Ahead

©2009 International Monetary Fund
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The Global Financial Stability Report provides semiannual assessments of global financial markets and addresses emerging market financing in a global context.*

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Executive Summary (550KB pdf file)

Chapter I. The Road to Recovery

Full Text    |   Boxes   |    Figures   |   Tables   |   Press Points

A. Global Financial Stability Map
B. Challenges on the Road to Recovery for the Global Financial System
C. Emerging Markets Navigate the Global Crisis but Vulnerabilities Remain
D. Will Credit Constraints Hurt the Recovery?
E. Managing the Transfer of Private Risks to Sovereign Balance Sheets
F. Policy Implications
Annex 1.1. Global Financial Stability Map: Construction and Methodology
Annex 1.2. Loan Loss and Bank Writedown Estimation Methodology
Annex 1.3. Estimating Core Bank Earnings
Annex 1.4. Credit Demand and Capacity Estimates in the United States, Euro Area, and the United Kingdom
Annex 1.5. The Impact of the Financial Crisis on the Savings Complex—Insurance and Pensions Funds

Chapter II. Restarting Securitization Markets: Policy Proposals and Pitfalls

Full Text   |   Boxes   |    Figures   |   Press Points

The Rise, Decline, and Fall of Securitization
Policy Initiatives Aimed at Restarting Sustainable Securitization
Conclusions and Policy Recommendations
Annex 2.1. Optimal Retention Policy and Capital Requirements

Chapter III. Market Interventions during the Financial Crisis: How Effective and How to Disengage?

Full Text   |   Boxes   |   Figures   |   Press Points

Intervention during the Crisis—Market Reaction to Announcements
Follow-Up to Initial Market Reaction—Longer-Term Effects of Intervention
Japan's Experience during the Latter Part of Its "Lost Decade"
Disengagement: A Conventional Primer for Unwinding Unconventional Policies
Conclusions and Policy Takeaways
Annex 3.1. Financial and Economic Stress Indices
Annex 3.2. Event Study Methodology and Data

Statistical Appendix(1100KB pdf file)

Key Financial Centers:      Figures    |   Tables
Emerging Markets:           Figures    |   Tables
Financial Soundness Indicators:           Tables


    1.1 Uncertainty Surrounding Loan Loss Estimations
1.2 Repairing Securitization Is Critical to Supporting the Supply of Credit
  1.3 Rising Public Deficits, Debts, and Bond Yields
1.4 Restoring the Level and Quality of Bank Capital
    2.1 The Case for Restarting Securitization
2.2 Credit Rating Agency Regulatory Developments
2.3 Re-Remics and the Revival of Resecuritization
Chart Data 2.4 Covered Bond Primer
2.5 Accounting for Securitization Exposures
2.6 Basel II Securitization- and Resecuritization-Related Enhancements
2.7 Optimal Retention Policies for Loan Securitization
Chart Data 3.1 Usage of Unconventional Central Bank Facilities
3.2 Interventions during Japan's 1990s Financial Crisis
    3.3 Excess Reserves as an Indicator of Funding Liquidity Concerns
    3.4 Implications of the Changes on Central Bank Balance Sheets


Data 1.1 Credit Market Spreads
Data 1.2 Estimates of Global Writedowns by Bank Domicile (2007–10) as of September 2009
Data 1.3 Bank Capital, Earnings, and Writedowns
1.4 Heat Map of Macro and Financial Indicators in Selected Emerging Market Countries
Data 1.5 Growth of Credit Demand from Nonfinancial Private Sector
Data 1.6 Total Net Borrowing Needs of Nonfinancial Sectors
Data 1.7 Projections of Credit Capacity for and Demand from Nonfinancial Sector
Data 1.8 Selected Spreads: Current and Pre-Lehman Brothers
Data 1.9 Sensitivity to Common Risk Factor for Euro Area Countries
1.10 Changes in Risks and Conditions since the April 2009 Global Financial Stability Report
Data 1.11 OECD Database: Coverage and Degree of Consolidation
Data 1.12 Statistical Output for the Euro Area Provision Rate Model
Data 1.13 Forecasts of Euro Area Provision Rates by Loan Type
Data 1.14 Statistical Output for the U.K Provision Rate Model
Data 1.15 Cumulative Loss Rates, 2007–10
Data 1.16 List of Security Indexes
Data 1.17 Euro Area Residential Securities Market
Data 1.18 U.S. Residential Securities Market
1.19 Regression Output on Demand for Nonfinancial Private and Public Sector Credit
Data 1.20 Underfunding Is More Serious in Mature U.S. Industries
Data 1.21 Mandatory Defined-Contribution Pension Assets, Selected Countries
Data 1.22 Equity Share in Total Portfolios, Selected Countries
Data 1.23 Real Performance of Mandatory Defined-Contribution Systems, Selected Countries
Data 1.24 Performance of Default Investment Options, Selected Countries
  2.1 Securitization Policy Progress Report
  2.2 United States: Issuance of Asset-Backed and Mortgage-Backed Securities—Average Degree of Tranche Retention
  2.3 Credit Ratings versus Idealized Expected Losses and Basel II Risk Weights
  2.4 Calculation of Tranche Sizes (Steps 1 and 2) with Assumed 20 Percent Effort Level
  2.5 Calculation of Ratings and Risk Weights (Step 3) with 31.2 Percent Effort Level: Mezzanine Tranche Retention
  3.1 Classification of Events
  3.2 Number of Interventions
  3.3 Effectiveness of Crisis Interventions
  3.4 Effectiveness of Crisis Interventions on the Financial Stress Index
  3.5 Efficiency of Financial Sector Policy Measures
  3.6 Three-Month LIBOR-Overnight Index Swap (OIS) Spread: Declines from Peak
  3.7 Supplementary Operations for Managing the Central Bank Balance Sheet
  3.8 Reversibility and Impact of Financial Sector Measures


Chart Data 1.1 Global Financial Stability Map
Chart Data 1.2 Heat Map: Developments in Systemic Asset Classes
Chart Data 1.3 Contributions to Changes in Corporate Spreads
Chart Data 1.4 Systemic Bank Default Risk
Chart Data 1.5 Asset Price Volatility and Funding and Market Liquidity
Chart Data 1.6 Composite Real Private Borrowing Rate and Short-Term Interest Rates
Chart Data 1.7 U.S. Loan Charge-Off Rates
Chart Data 1.8 Euro Area: Provision Rates
Chart Data 1.9 Realized and Expected Writedowns or Loss Provisions for Banks by Region
Chart Data 1.10 Bank Problem Loans and Income
Chart Data 1.11 Bank Earnings
Chart Data 1.12 Bank Capital Needs
Chart Data 1.13 Mature Market Banks: Bond Debt Maturity Structure
Chart Data 1.14 Mature Markets: Gross and Guaranteed Bond Issuance by Month
Chart Data 1.15 European Central Bank Refinancing Facilities
Chart Data 1.16 Global Bank and Insurance Equity Indices
Chart Data 1.17 Funding Levels of Defined-Benefit Pension Plans of Companies in Major Equity Indices
Chart Data 1.18 Heat Map: Developments in Emerging Market Systemic Asset Classes
Chart Data 1.19 Contributions to Changes in Emerging Market Sovereign External Spreads
Chart Data 1.20 Emerging Europe Credit Default Swap Spreads, June 30, 2008 to August 31, 2009
Chart Data 1.21 Net Capital Inflows
Chart Data 1.22 Emerging Markets: Bank Credit to the Private Sector
Chart Data 1.23 Refinancing Needs of Emerging Market Forex-Denominated Corporate Debt
Chart Data 1.24 Emerging Market External Bond Issuance by Sector and Rating
Chart Data 1.25 Rollover Rate of Emerging Market Forex-Denominated Corporate Debt
Chart Data 1.26 Emerging Market Corporate Spreads and Speculative-Grade Default Rate
Chart Data 1.27 Emerging Europe: Nonperforming Loan Ratios
Chart Data 1.28 Private Sector Credit Growth
Chart Data 1.29 Growth of Nonfinancial Sector Debt: History and Projected Borrowing Needs
Chart Data 1.30 Bank Lending Capacity Growth
Chart Data 1.31 Emerging Market Reserve Accumulation
Chart Data 1.32 Net Sovereign Debt Issuance in Mature Markets
Chart Data 1.33 Emerging Market Sovereign Issuance in International Capital Markets
Chart Data
1.34 Global Financial Stability Map: Monetary and Financial Conditions
Chart Data
1.35 Global Financial Stability Map: Risk Appetite
Chart Data
1.36 Global Financial Stability Map: Macroeconomic Risks
Chart Data
1.37 Global Financial Stability Map: Emerging Market Risks
Chart Data
1.38 Global Financial Stability Map: Credit Risks
Chart Data
1.39 Global Financial Stability Map: Market and Liquidity Risks
Chart Data 1.40 Provisions for Loan Losses
Chart Data 1.41 Estimated Share of Euro Area Bank Loans, 2007–10
Chart Data 1.42 Estimated Breakdown of Securities Exposure of Euro Area Banks
Chart Data 1.43 Growth of Nonbank Fixed-Income Assets Under Management
Chart Data 1.44 Financial Sector Credit Default Swap Spreads
Chart Data 1.45 Worsening Funding Ratio of U.S. Defined-Benefit Plans in 2008
2.1 The Securitization Landscape
Chart Data 2.2 Global Private-Label Securitization Issuance by Type
Chart Data 2.3 U.S. Private-Label Securitization Issuance by Type
Chart Data 2.4 European Private-Label Securitization Issuance by Type
Chart Data 2.5 U.S. Asset-Backed Security (ABS) and Private-Label Mortgage-Backed Security (MBS) Issuance
Chart Data 2.6 Credit Spreads on U.S. AAA Securitization Instruments
Chart Data 2.7 U.S. Government-Sponsored Enterprise versus Private-Label Mortgage-Backed Security Issuance
Chart Data 2.8 Non-U.S. and Non-European Private-Label Securitization Issuance
Chart Data 2.9 Global Covered Bond Issuance
Chart Data 2.10 Selected Covered Bond Spreads
2.11 Illustrative Intermediation Chain
Chart Data 2.12 Where Did All the AAAs Go?
Chart Data 2.13 U.S. Issuance of Asset-Backed and Mortgage-Backed Securities
3.1 Time Pattern of Crisis Measures in Sample Countries
3.2 Spillovers from Global and U.S. Crisis Interventions Reflected on the Financial Stress Index
3.3 United States: Impact of Counterproductive Interventions on the Financial Stress Index
3.4 Government-Guaranteed Bonds (GGB) and Nonguaranteed Investment-Grade Bank Bonds
3.5 Impact of Liability Guarantees on Bond Issuance
Chart Data 3.6 United States: Outstanding Amount of Commercial Paper
Chart Data 3.7 Securitization in the United States and Europe
Chart Data 3.8 Credit Growth and Bank Lending Standards
3.9 United States: Outstanding Amount of Unconventional Measures by the Federal Reserve
Chart Data 3.10 Impact of Financial Sector Stabilization Measures on Credit Default Swap (CDS) Spreads
Chart Data 3.11 Mortgage Rates
Chart Data 3.12 Banking Sector Current Account Balance with the Bank of Japan
Chart Data 3.13 Failed Banks Assisted by Deposit Insurance Corporation of Japan
Chart Data 3.14 Three-Month Spread between TIBOR and LIBOR
Chart Data 3.15 Japan: Bank Loans and the Consumer Price Index
Chart Data 3.16 Changes in the Major Components of Central Banks’ Balance Sheet

Statistical Appendix

Key Financial Centers


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 Indices
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


Data 1. Global Financial Flows: Inflows and Outflows
Data 2. Global Financial 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, 2008
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


Chart Data 15. Emerging Market Volatility Measures
Chart Data 16. Emerging Market Debt Cross-Correlation Measures


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. Emerging Markets: Mutual Fund Flows

Financial Soundness Indicators


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

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. . . 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.

On this site, 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. Dependent territories of member countries are listed alphabetically followed by a description of the constitutional relationships with their member countries.