## Foreword

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### Purpose and context
- GFSR frequency and aim:
  - "Twice a year, the Global Financial Stability Report (GFSR) assesses the degree to which developments in the financial sector may affect future economic conditions by analyzing macro-financial linkages and then identifies policies to mitigate risks to growth from the financial sector."
- Recent market backdrop since the last report in April:
  - "Investor risk appetite is buoyant globally."
  - "Funding conditions have continued to improve."
  - "Asset return volatility has receded to multiyear lows across markets."
  - "Global capital flows have surged."
- Implications of easing financial conditions:
  - "This easing of financial conditions has supported global growth and financial inclusion, with credit being allocated to benefit a broad range of borrowers."
  - Window of opportunity: "These favorable conditions create a window of opportunity to strengthen the financial system that should be seized, since experience has taught us that it is during times of easy financial conditions that vulnerabilities build."

### Chapter summaries and analytical approach
- Chapter 1:
  - Documents "how the continuation of monetary accommodation in advanced economies—necessary to support activity and boost inflation—is associated with rising asset valuations and higher leverage, and how this environment makes the system more vulnerable to future shocks."
- Chapter 2:
  - Focuses on household leverage, showing "that ample credit growth portends benign conditions in the near term but larger downside risks in the medium term—and thus creates an intertemporal tradeoff."
- Chapter 3:
  - Links easing financial conditions to downside risks to GDP growth: "Easy financial conditions fuel growth in the shorter term, but when those conditions are coupled with a buildup in leverage, risks to growth rise in the medium term."
  - Introduces a proposed metric: "measure financial stability by a measure of Growth at Risk, defined as the value at risk of future GDP growth as a function of financial vulnerability."

### Key findings on vulnerabilities and policy implications
- Main analytical conclusion:
  - "Some of the factors that have contributed to recent gains in financial stability could put growth at risk in the medium term in the absence of appropriate policies to address rising financial vulnerabilities."
- Policy priorities:
  - Primary tool: "Macroprudential policies, such as those that address underwriting standards, are the primary tool for guarding against future risks to growth from the global financial system."
  - Timing: "Now is the time to further strengthen that system, particularly by focusing on nonbank institutions, whose vulnerabilities are rising."
  - Complementarity: "Macroprudential policies that mitigate the buildup of medium-term risks can also help to better balance monetary policy tradeoffs."

### Banking sector assessment and regulatory guidance
- GSIBs (global systemically important banks):
  - Safety has "improved significantly."
  - Improvements due to post-2008 reforms: "Those banks have more capital and more liquidity and are subject to tighter supervision, thanks to the pivotal reforms undertaken after the 2008 global financial crisis."
  - Ongoing challenges: "Yet some GSIBs still struggle to adapt their business models to ensure their continued health and profitability, which is critical if they are to fulfill their primary mandate: lending to the real economy."
- Regulatory reform guidance:
  - Review of unintended consequences of postcrisis reforms "will likely lead to some streamlining in the implementation of banking regulations."
  - Essential conditions to preserve: 
    - "the overall high level of capital and liquidity be preserved,"
    - "regulatory uncertainty be avoided,"
    - "the global financial regulatory reform agenda be completed."
  - International cooperation: "Equally essential is continuing international regulatory cooperation."

*Tobias Adrian, Financial Counsellor — International Monetary Fund | October 2017*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2017/october/chapter-1/documents/foreword.pdf_