Global Financial Stability Report

©2011 International Monetary Fund
Buy a print subscription
Ordering Information

Disclaimer                  Copyright and Usage

Full Text

Contents

Executive Summary  

Preface

Glossary 

Summing Up of the Acting Chair

Chapter I. Key Risks and Challenges for Sustaining Financial Stability

Full Text   |   Video    |   Boxes   |    Figures   |   Tables   |   Press Points

A. What Are the Key Stability Risks and Challenges?

B. Living Dangerously—The Legacy of High Debt Burdens in Advanced Economies

C. Banking System—Not Enough Has Been Done

D. Sovereign Funding Challenges

E. Alleviating Pressures on Households and Firms

F. Macro and Stability Implications of Capital Inflows into Emerging Markets

G. Durable Financial Stability: Getting There from Here

Annex 1.1. What Factors Are Driving U.S. Bond Yields Higher?

Annex 1.2. Compilation of Investor Base Data for General Government Debt

Annex 1.3. Dubai: From Debt Overhang to Restructuring, but Risks Remain

Annex 1.4. Projecting Government Funding Costs through 2015

Annex 1.5. Strategic Defaults and Housing Prices in the United States

Annex 1.6. Recent Measures to Manage Capital Flows in Selected Economies

Annex 1.7. Exchange-Traded Funds: Mechanics and Risks

References

Chapter II. How to Address the Systemic Part of Liquidity Risk

Full Text   |   Video    |   Boxes   |    Figures   |   Press Points

Summary

What Is Systemic Liquidity Risk?

Will Liquidity Rules Under Basel III Lower Systemic Risk?

Measures of Systemic Liquidity Risk and Potential Macroprudential Tools to Mitigate It

Summary and Policy Considerations

Annex 2.1. Methods Used to Compute a Systemic Liquidity Risk Index

Annex 2.2. Technical Description of the Systemic Risk-Adjusted Liquidity Model

Annex 2.3. Highlights of the Stress-Testing Framework References

References

Chapter III. Housing Finance and Financial Stability—Back to Basics?

Full Text   |   Video    |   Boxes   |   Figures   |   Press Points

Summary

Housing Booms and Busts—Theory and Stylized Facts

Global Housing Finance Landscape

Housing Finance and Financial Stability

Conclusions and Policy Implications—Back to Basics

Annex 3.1. The Impact of Housing Finance Modes on House Prices and Loan-Loss Growth during the Recent Crisis

Annex 3.2. Evidence on House Prices, Credit, and Housing Finance Characteristics in Advanced Economies

References

Statistical Appendix (1900 KB pdf file)

Figures    |   Tables

Boxes

		1.1	The Middle East: Geopolitical Risk to the Financial Stability Outlook
		1.2	Implications of Japan’s Earthquake for Financial Stability
		1.3	Examining the Ability of U.S. Banks to Absorb Mortgage Principal Reductions
		1.4	Are Debt Vulnerabilities Building in the Emerging Market Corporate Sector?
		1.5	Emerging Market Banks: Fueling Growth or Frenzy?
		1.6	Euro Area Crisis Management and Prevention
		1.7	Regulatory Reforms: Are We There Yet?
	Data	2.1	How Well Does the Net Stable Funding Ratio Predict Banks' Liquidity Problems?
		2.2	How Well Does the Systemic Liquidity Risk Index Explain Banks' Liquidity Problems?
		3.1	The Danish “Balance Principle” Mortgage Model
		3.2	Legal Prerequisites for Housing Finance Systems
		3.3	Experience with Limits on Loan-to-Value Ratios for Residential Mortgages
	Data	3.4	Housing Finance and the U.S. Housing Crisis
		3.5	Emerging Market Mortgage Securitization
		3.6	Empirical Analyses of the Relationships among House Prices, Credit, and Housing Finance Characteristics
		3.7	Mortgage Finance Unbundling and Incentive Misalignments

Tables

	Data	1.1	Sovereign Market and Vulnerability Indicators
		1.2	Low-Growth Shock: Impact Analysis and Ranking
	Data	1.3	Low-Growth Shock: Impact Analysis and Ranking
	Data	1.4	Low-Growth Shock: Impact Analysis and Ranking
		1.5	Low-Growth Shock: Impact Analysis and Ranking
		1.6	Low-Growth Shock: Impact Analysis and Ranking
		2.1	Factors Used in Calculations
		2.2	Main Features of the Proposed Methodologies
		2.3	Indicators for (Systemic) Liquidity Risk Monitoring
		2.4	Joint Expected Losses from Systemic Liquidity Risk
		2.5	Capital Charge for Individual Liquidity Risk and Individual Contribution to Systemic Liquidity Risk
		2.6	Summary Statistics of Individual Contributions to Systemic Liquidity Risk and Associated Fair Value Insurance Premium
		2.7	Selected Liquidity Stress Testing Frameworks
		2.8	Withdrawal Rate Assumptions
		2.9	Probability of Banks Ending the Simulation with a Liquidity Shortage
		2.10	Capital Surcharges
		2.11	Selected Regulatory Proposals for Managing Systemic Liquidity Risk
		3.1	Crisis Measures
		3.2	Housing Finance Features in Advanced Economies, 2008
		3.3	Housing Finance Systems in Emerging and Newly Industrialized Economies, 2008
		3.4	Mortgage Market Characteristics in Emerging and Newly Industrialized Economies, 2008
		3.5	Index of Government Participation in Housing Finance Markets, 2008
		3.6	Which Housing Finance Features Help Explain Growth in House Prices, Mortgage Credit, and Nonperforming Loans?
		3.7	Joint Determinants of Growth in Real House Prices, Mortgage Credit, and Loan Losses
		3.8	Joint Determinants of Growth in Real House Prices and Mortgage Credit, Pre-Crisis Episode, 2004–07
		3.9	House Prices and Household Bank Credit
		3.10	House Prices, Household Bank Credit, and Macroeconomic Controls
		3.11	House Prices and Housing Finance Characteristics
		3.12	House Prices and Government Participation

Figures

	Data	1.1	Global Financial Stability Map
	Data	1.2	Global Financial Stability Map: Assessment of Risks and Conditions
		1.3	Changes in Financial Conditions
	Data	1.4	Risk Appetite
		1.5	Banking Sector Challenges
	Data	1.6	Banking System Capital and Reliance on Wholesale Funding
		1.7	Global Bank Debt Maturity Profile
	Data	1.8	Bank Rollover Requirement, 2011–12
		1.9	Bank Debt Yields
	Data	1.10	Increase in Bank Deposit Rates
	Data	1.11	Change in Bank Net Interest Margin, June 2010
		1.12	Policy Solutions to Banking Sector Challenges
		1.13	European Union Bank Core Tier 1 Ratios, 2010
		1.14	Sovereign Credit Default Swap Spreads
	Data	1.15	Euro Area Treasury Bond Spreads over German Bunds, and Volatility
	Data	1.16	Risk-Adjusted Yields for Euro-Denominated Bonds
	Data	1.17	Change in General Government Debt Holdings
	Data	1.18	Average versus Marginal Government Funding Costs
	Data	1.19	Sovereign Funding Needs
	Data	1.20	Government Funding Costs in 2015
		1.21	Funding Cost Thresholds, Debt, and Revenue
	Data	1.22	Leverage Ratios: Household Debt as a Percent of GDP
	Data	1.23	Various Measures of U.S. Household Leverage
	Data	1.24	Shadow Inventory of Houses Potentially for Sale
	Data	1.25	Household Balance Sheets
	Data	1.26	Federal Reserve Assets and Flows into U.S. Risky Assets
	Data	1.27	Nonfinancial Corporate Credit Default Swap Spreads
	Data	1.28	Nonfinancial Corporates’ Debt-to-Equity Ratios
	Data	1.29	Lending Conditions for Small and Medium-Sized Enterprises
	Data	1.30	Debt Maturity Profile for the Commercial Real Estate Sector
	Data	1.31	Net Capital Inflows to Emerging Markets
	Data	1.32	U.S. Investment Flows in Foreign Securities
		1.33	Portfolio Debt Inflows and Risk-Adjusted Local Government Yields
	Data	1.34	Average Monthly Retail Flows to Emerging Market Debt and Equity Mutual Funds
	Data	1.35	Capital Inflows, Real Credit, and Real Equity Prices
		1.36	Emerging Market Equities: Foreign Inflows, Issuance, and Returns in 2010
	Data	1.37	Emerging Market External Corporate Issuance by Rating
		1.38	Median Volatility of Inflation, Currencies, and Capital Flows
	Data	1.39	Real Policy Rates in February 2011
		1.40	Ten-Year Government Bond Yields
		1.41	Macroeconomic Surprise Indices
		1.42	Ten-Year Break-Even Rates
	Data	1.43	Term Premium on U.S. Treasuries
	Data	1.44	Components of 10-Year Nominal Treasury Yield
	Data	1.45	Dubai: Foreign Borrowing Surge and Rollover Risk
	Data	1.46	Urban Real Estate Prices, CPI-Deflated
	Data	1.47	Maturity Profile of Debt of Dubai Government-Related Enterprises
	Data	1.48	Dubai: Composition of Debt
		1.49	Credit Default Swap Spreads
	Data	1.50	United Arab Emirates: Recent Developments in Local Banks
	Data	1.51	Nonperforming Loans and Real Estate
	Data	1.52	Government Funding Costs and Debt Affordability
		1.53	Annualized Transition Probability of a Performing Prime Mortgage to 60-Plus Day Delinquency Conditional on Local Unemployment Rate
	Data	1.54	U.S. Mortgage Delinquency Probability and Home Equity Distribution
	Data	1.55	Home Equity, Delinquency Rate, and House Price Declines
	Data	1.56	Indonesia: Foreign Holdings of Government Bonds and Bank Indonesia Certificates
		1.57	Thailand: Weekly Foreign Portfolio Inflows and Reserves
	Data	1.58	Asian Residential Property Prices
	Data	1.59	Korea: Short-Term External Borrowing
	Data	1.60	Exchange-Traded Fund Assets ($1.2 Trillion), by Type of Exposure
	Data	1.61	Exchange-Traded Fund Trading: Synthetic Replication Based on Total Return Swaps
	Data	1.62	Counterparty Risks in Exchange-Traded Funds
		1.63	Flash Crash: Intraday Prices, May 6, 2010
		1.64	Gold Exchange-Traded Funds
	Data	2.1	Net Stable Funding Ratio by Region
	Data	2.2	Net Stable Funding Ratio by Business Model
	Data	2.3	Net Stable Funding Ratio by Bank, 2009
	Data	2.4	Systemic Liquidity Risk Index
	Data	2.5	Average Sensitivity of Volatility of Banks' Return on Equity to Systemic Liquidity Risk Index
	Data	2.6	Sensitivity of Volatility of Banks’ Return on Equity Based on Market Capitalization to Systemic Liquidity Risk Index
	Data	2.7	Sensitivity of Volatility of Banks' Return on Equity Based on Net Stable Funding Ratio to Systemic Liquidity Risk Index
	Data	2.8	Illustration of Individual Expected Losses Arising from Liquidity Risk
	Data	2.9	Illustration of Joint and Total Expected Shortfalls Arising from Systemic Liquidity Risk
	Data	2.10	Total Loan Reductions
	Data	2.11	Principal Component Analysis: Total Variation Explained by Each Factor
		2.12	Methodology to Compute Systemic Liquidity under the Systemic Risk-Adjusted Liquidity Model
		2.13	Conceptual Relation between the Net Stable Funding Ratio at Market Prices and Expected Losses from Liquidity Risk
		2.14	Conceptual Scheme for the Probability Distribution of Joint Expected Shortfall from Liquidity Risk: Two-Firm (Bivariate) Case
		2.15	Systemic Liquidity Risk ST Framework
	Data	3.1	House Price Indices
	Data	3.2	Government Participation in Housing Finance
	Data	3.3	Government Participation in Housing Finance: Emerging and Newly Industrialized Economies
	Data	3.4	Homeownership Rate and Government Participation in Housing Finance
	Data	3.5	Homeownership Rate
	Data	3.6	Residential Mortgage-Debt-to-GDP Ratio: Advanced Economies
	Data	3.7	Residential Mortgage-Debt-to-GDP Ratio: Emerging Europe
	Data	3.8	Nonperforming Residential Mortgage Loans
	Data	3.9	Home Foreclosures in the United Kingdom and the United States

Statistical Appendix

Figures

Data	1.	Major Net Exporters and Importers of Capital in 2010
	2.	Sovereign Credit Default Swap Spreads
	3.	Selected Credit Default Swap Spreads
Data	4.	Selected Spreads
Data	5.	Implied Volatility Indices
Data	6.	Twelve-Month Forward Price/Earnings Ratios
Data	7.	United States: Corporate Bond Market
Data	8.	Euro Area: Corporate Bond Market
Data	9.	United States: Commercial Paper Market

Tables

Data	1.	Selected Indicators on the Size of the Capital Markets, 2009
Data	2.	MSCI Equity Market Indices
Data	3.	Emerging Market Bond Index: EMBI Global Yield Spreads
Data	4.	Emerging Market External Financing: Total Bonds, Equities, and Loans
Data	5.	Emerging Market External Financing: Bonds
Data	6.	Emerging Market External Financing: Equities
Data	7.	Emerging Market External Financing: Loans
Data	8.	Equity Valuation Measures: Dividend-Yield Ratios
Data	9.	Equity Valuation Measures: Price/Earnings Ratios
Data	10.	Emerging Markets: Mutual Fund Flows

(*)Please note that effective this issue, the IMF’s Statistics Department has assumed responsibility for compiling the Financial Soundness Indicators tables and they are no longer part of this appendix. However, these tables will continue to be linked to the GFSR Statistical Appendix on the IMF’s public website.

The following symbols have been used throughout this appendix:  . . . 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 and months (for example, 2008–09 or January–June) to indicate the years or months covered, including the beginning and ending years or months; / between years (for example, 2008/09) 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 ¼ of 1 percentage point). “n.a.” means not applicable. Minor discrepancies between constituent figures and totals are due to rounding.

Disclaimer: 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.