Global Financial Stability Report
Financial Stress and Deleveraging Macro-Financial Implications and Policy
October 2008
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.
©2008 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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Contents
Preface(208KB pdf file)
Executive Summary(241KB pdf file)
Chapter I. Assessing Risks to Global Financial Stability
Full Text | Boxes | Figures | Tables
| Global Financial Stability Map | ||
| The Default Cycle | ||
| Financial System Deleveraging | ||
| Systemic Implications | ||
| Emerging Market Resilience Is Being Tested | ||
| Financial Stability Policies | ||
| Annex 1.1. Global Financial Stability Map: Construction and Methodology | ||
| Annex 1.2. Financial Investment in Commodities Markets | ||
| Annex 1.3. Loss Estimates on U.S. Credit Instruments | ||
| Annex 1.4. Factors Infl uencing the Pace and Level of Bank Capital Rebuilding | ||
| References |
Chapter II. Stress in Bank Funding Markets and Implications for Monetary Policy
| The Microstructure of Bank Funding Markets | ||
| The Causes of Elevated Interbank Spreads | ||
| Implications for the Interest Rate Transmission Mechanism of Monetary Policy | ||
| Policy Recommendations | ||
| Annex 2.1. Empirical Framework: The Causes of High Interbank Spreads | ||
| Annex 2.2. Empirical Framework: Monetary Transmission | ||
| References |
Chapter III. Fair Value Accounting and Procyclicality
| Fair Value Accounting Through the Business Cycle | ||
| Modeling Fair Value Accounting Through the Business Cycle Using Simulations | ||
| Conclusions and Policy Recommendations | ||
| Annex 3.1. Data and Modeling Assumptions | ||
| References |
Chapter IV. Spillovers to Emerging Equity Markets
| Performance of Emerging Market Equity Markets | ||
| Cross-Country Equity Price Correlations | ||
| Determinants of Emerging Market Equity Prices | ||
| Spillovers and their Impact | ||
| The Role of Local Institutional Investors | ||
| Key Results and Conclusions | ||
| Annex 4.1. Panel Estimation Specification and Results | ||
| Annex 4.2. Vector Autoregression Model Results | ||
| References |
Glossary (270KB pdf file)
Annex: Summing Up by the Acting Chair
Statistical Appendix(1,331KB pdf file)
Key Financial Centers: Figures | TablesEmerging Markets: Figures | Tables
Financial Soundness Indicators: Tables
| Chart Chart |
Data Data |
1.1 | Recent Financial Market Developments |
| 1.2 | Measuring Capital Adequacy | ||
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Data Data Data |
1.3 | Global Bank Writedowns and Capital Raising |
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Data Data Data |
1.4 | U.S. Government-Sponsored Enterprises and Housing Reform Developments |
| Chart Chart |
Data Data |
1.5 | Impact of Credit Market Turmoil on Hedge Funds |
| 1.6 | Forecasting Loan Charge-Off Rates | ||
| 2.1 | Pricing and Hedging Role of Interbank Deposit-Related Derivatives | ||
| Chart Chart Chart |
Data Data Data |
2.2 | Is the LIBOR Fix Broken? |
| Chart Chart |
Data Data |
2.3 | The Federal Reserve's Term Auction Facility |
| Chart | Data | 2.4 | Breakdown of the Financial Sector for Monetary Transmission Analysis |
| 3.1 | Off-Balance Sheet Entities and Procyclicality | ||
| 3.2 | Disclosures Recommended by the Financial Stability Forum | ||
| 3.3 | Dealing with Procyclicality in the Basel II Framework | ||
| 3.4 | Options Surrounding the Application of Fair Value Accounting to Mitigate Procyclicality | ||
| 4.1 | Is There a Stock Market Wealth Effect in Emerging Markets? | ||
| Chart Chart Chart Chart |
Data Data Data Data |
4.2 | The Role of Emerging Market Institutional Investors in Emerging Market Equities |
| Data | 1.1 | Estimates of Financial Sector Potential Writedowns | ||
| Data | 1.2 | Estimates of Potential Losses on Loans | ||
| Data | 1.3 | European and U.S. Public Securitization | ||
| Data | 1.4 | Sensitivity of Deleveraging to Public Sector Support | ||
| Data | 1.5 | Macro and Financial Indicators in Selected Emerging Market Countries | ||
| 1.6 | Change in Risks and Conditions Since the April 2008 Global Financial Stability Report | |||
| Data | 1.7 | Asset Class Characteristics | ||
| Data | 1.8 | Test for Causality Between Commodities Prices and Financial Positions | ||
| Data | 1.9 | Comparison of Financial Sector Loss Estimates, October 2008 | ||
| Data | 1.10 | Deleveraging Illustration: Key Assumptions | ||
| 2.1 | List of Restrictions Used in the Structural Vector Autoregression for Each LIBOR and Euribor Spread | |||
| 2.2 | Static Vector Error Correction Mechanism (2, 3) Estimation with Variable Controls: United States | |||
| 2.3 | Static Vector Error Correction Mechanism (2, 3) Estimation with Variable Controls: Euro Area | |||
| 2.4 | List of Variables Used in the Vector Autoregressions | |||
| 3.1 | Balance Sheet of Representative U.S. and European Financial Institutions | |||
| 3.2 | Parameter Values for Each Simulation | |||
| 3.3 | Equity-to-Assets Ratio through the Business Cycle | |||
| 3.4 | Application of Fair Value by U.S. and European Banks, 2007 | |||
| 4.1 | Emerging Equity Market Peaks and Troughs: Current and Previous Episodes | |||
| 4.2 | Fixed-Effects Panel Least-Squares Estimation of the Determinants of Emerging Market Equity Prices—Monthly Observations (January 2001-May 2008), 30 Countries, First Specification | |||
| 4.3 | Fixed-Effects Panel Least-Squares Estimation of the Determinants of Emerging Market Equity Prices—Monthly Observations (January 2001-May 2008), 30 Countries, Second Specification | |||
| 4.4 | Unit Root Tests | |||
| 4.5 | Pedroni Heterogeneous Panel Cointegration Tests | |||
| Chart | Data | 1.1 | Global Financial Stability Map |
| Chart | Data | 1.2 | Heat Map: Developments in Systemic Asset Classes |
| Chart | Data | 1.3 | Systemic Bank Default Risk |
| Chart | Data | 1.4 | Asset Price Volatility and Funding and Market Liquidity |
| Chart | Data | 1.5 | Allocation to Global and Emerging Market Risk Assets |
| Chart | Data | 1.6 | U.S. Loan Charge-Off Rates |
| Chart | Data | 1.7 | U.S. Households' Balance Sheet: Net Worth |
| Chart | Data | 1.8 | U.S. Mortgage Delinquencies by Vintage Year |
| Chart | Data | 1.9 | Prices of U.S. Mortgage-Related Securities |
| Chart | Data | 1.10 | U.S. Residential Real Estate: Loan Charge-Off Rates |
| Chart | Data | 1.11 | U.S. Consumer Loans: Charge-Off Rates |
| Chart | Data | 1.12 | Macroeconomic and Corporate Indicators and Default Rates |
| Chart | Data | 1.13 | Comparison of Financial Crises |
| Chart | Data | 1.14 | Financial Sector Losses |
| Chart | Data | 1.15 | Ratio of Household Debt to Gross Disposable Income |
| Chart | Data | 1.16 | U.K. Mortgage Foreclosures |
| Chart | Data | 1.17 | Net Acquisition of Financial Assets by U.S. Financial Firms |
| Chart | Data | 1.18 | Bank Ratios |
| Chart | Data | 1.19 | U.S. Banks' Price-to-Book Ratios and Risk Exposures |
| Chart | Data | 1.20 | European Banks' Price-to-Book Ratios and European Real Estate Prices |
| Chart | Data | 1.21 | U.K. Banks' Price-to-Book Ratios |
| Chart | Data | 1.22 | AA Rated Bank Bond Index Spreads Relative to Government Bonds |
| Chart | Data | 1.23 | European Banks' Cross-Border Liabilities, end-2007 |
| Chart | Data | 1.24 | Net Cross-Border U.S. Dollar Claims of European Banks |
| Chart | Data | 1.25 | Cross-Currency Swaps with U.S. Dollar |
| Chart | Data | 1.26 | Private Sector Credit Growth |
| Chart | Data | 1.27 | Euro Area Financial Institution Lending for Home Purchase |
| Chart | Data | 1.28 | Market Capitalization and Equity Book Values of Select Financial Institutions |
| Chart | Data | 1.29 | Probability of Default Based on Equity Option Prices |
| Chart | Data | 1.30 | U.S. Equity Index Performance |
| Chart | Data | 1.31 | Total Assets on Federal Reserve's Balance Sheet |
| Chart | Data | 1.32 | Potential U.S. Commitments and Mortgage Markets |
| Chart | Data | 1.33 | Sovereign Credit Default Swap Spreads |
| Chart | Data | 1.34 | Net Foreign Equity Investment in Emerging Economies |
| Chart | Data | 1.35 | Emerging Market External and U.S. High-Grade Corporate Spreads |
| Chart | Data | 1.36 | Onshore Emerging Market Dollar Interest Rates |
| Chart | Data | 1.37 | Credit Default Swap Spreads on Selected Emerging Market Banks, January 2007-Early October 2008 |
| Chart | Data | 1.38 | Real Policy Rates: Latest Levels and Changes from end-2008 |
| Chart | Data | 1.39 | Break-Even Inflation Rates |
| Chart | Data | 1.40 | Baltic States: Real Bank Loan Growth to Non financial Private Sector |
| Chart | Data Data Data Data Data |
1.41 | Global Financial Stability Map: Monetary and Financial Conditions |
| Chart | Data Data Data Data |
1.42 | Global Financial Stability Map: Risk Appetite |
| Chart | Data Data Data Data Data Data |
1.43 | Global Financial Stability Map: Macroeconomic Risks |
| Chart | Data Data Data Data Data |
1.44 | Global Financial Stability Map: Emerging Market Risks |
| Chart | Data Data Data Data Data |
1.45 | Global Financial Stability Map: Credit Risks |
| Chart | Data Data Data Data Data Data |
1.46 | Global Financial Stability Map: Market and Liquidity Risks |
| Chart | Data Data Data Data Data Data |
1.47 | Commodity Futures Prices and Financial Positions |
| Chart | Data | 2.1 | Unsecured European Bank Borrowing Volumes |
| Chart | Data | 2.2 | Spread Between Three-Month Uncollateralized Interbank Rates and Overnight Index Swaps |
| Chart | Data | 2.3 | Joint Probability of Distress: Selected Financial Institutions Participating in Interbank Panels |
| Chart | Data | 2.4 | Three-Month Forex Swap Spreads |
| Chart | Data | 2.5 | Structured VAR Model: Variance Decomposition of LIBOR/Euribor Minus Overnight Index Swap (OIS) Spread |
| Chart | Data | 2.6 | Selected Countries: Size of Financial Assets |
| Chart | Data | 2.7 | United States: Structural Changes in Financial Sector Liabilities |
| Chart | Data | 2.8 | United States: Selected Interest Rate Spreads |
| Chart | Data | 2.9 | Euro Area: Selected Interest Rates Spreads |
| Chart | Data | 2.10 | Dynamic Vector Error Correction Mechanism (VECM) (2,3) Estimation of the U.S. Fed Funds Rate and Market Rates—United States |
| Chart | Data | 2.11 | Dynamic Vector Error Correction Mechanism VECM (2,3) Estimation of the EONIA Rate and Market Rates—Euro Area |
| Chart | Data | 2.12 | Summary Chart: Accuracy of Forecasts—U.S. Model, 1996-2008 |
| Chart | Data | 2.13 | Summary Chart: Accuracy of Forecasts—U.S. Model, 2006-08 |
| Chart | Data | 2.14 | Summary Chart: Accuracy of Forecasts—Euro Area Model, 2006-08 |
| Chart | Data | 2.15 | Decomposition of Spread between Three-Month U.S. Dollar LIBOR and Overnight Index Swaps |
| Chart | Data | 3.1 | Selected U.S.-Based Financial Institutions: Change in Level 1, 2, and 3 Assets |
| Chart | Data | 3.2 | Aggregate Fair Value Hierarchy, End-2007 |
| Chart | Data | 3.3 | Simulation of Full Fair Value |
| Chart | Data | 3.4 | Simulation of Full Fair Value: Changes in Funding Conditions and Financial Market Distress |
| Chart | Data | 3.5 | Simulation of Full Fair Value: International versus Retail-Oriented Banks |
| Chart | Data | 3.6 | Simulation of Partial Fair Value |
| Chart | Data | 3.7 | Simulation of Smoothing Techniques |
| Chart | Data | 3.8 | Yield Curves and Business Cycles |
| Chart | Data | 3.9 | Simulation of Full Fair Value with Upward Sloping Yield Curve |
| Chart | Data | 4.1 | Selected Equity Market Indices |
| Chart | Data | 4.2 | Emerging Market Economies: Composition of Capital Inflows |
| Chart | Data | 4.3 | Current Account Balances and Capital Flows from a Global Perspective |
| Chart | Data | 4.4 | Stock Market Capitalization |
| Chart | Data | 4.5 | Total Equity Market Returns |
| Chart | Data | 4.6 | Price/Earnings Ratios, July 31, 2008 |
| Chart | Data | 4.7 | Total Foreign Holdings of Equity |
| Chart | Data | 4.8 | Emerging Markets Equity Indices and Foreign Investor Presence |
| Chart | Data | 4.9 | Implied Correlations from Dynamic Conditional Correlation GARCH Specification |
| Chart | Data | 4.10 | Emerging Market Countries: Implied Correlations from Dynamic Conditional Correlation GARCH Specification |
| Chart | Data | 4.11 | Equity Price Response to Global Excess Liquidity Increase |
| Data | 4.12 | Equity Price Response to Credit Risk Premium Increase | |
| Data | 4.13 | Equity Price Response to Market Risk Premium Increase |
| Chart | Data | 1. | Major Net Exporters and Importers of Capital in 2007 |
| 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 Capital Flows: Inflows and Outflows |
| Data | 2. | Global Capital Flows: Amounts Outstanding and Net Issues of International Debt Securities by Currency of Issue and Announced 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
| 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. | United States: 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 |
| 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. |