Loading component...
Global Financial Stability Report
A Decade after the Global Financial Crisis: Are We Safer?
October 2018
[$token_name="PublicationDisclaimer"]
Global Financial Stability Report
October 2018
[$token_name="PublicationDisclaimer"]
The October 2018 Global Financial Stability Report (GFSR) finds that global near-term risks to financial stability have increased somewhat, reflecting mounting pressures in emerging market economies and escalating trade tensions. These risks, while still moderate, could increase significantly. An intensification of concerns about emerging markets, a broader rise in trade tensions, the realization of political and policy uncertainty, or a faster-than-expected tightening in monetary normalization could all lead to a sharp tightening in financial conditions. Medium-term financial stability risks remain elevated, driven by high non–financial sector leverage in advanced economies and rising external borrowing in emerging markets. Although the global banking system is stronger than before the crisis, it is exposed to highly indebted borrowers as well as to opaque and illiquid assets and foreign currency rollover risks. This all raises the urgency for policymakers to step up efforts to boost the financial system’s resilience by completing the financial regulatory reform agenda as well as developing and deploying macroprudential policy tools. This GFSR also takes stock of global regulatory reform 10 years after the global financial crisis. It reviews the main precrisis failings in financial sector oversight and assesses the progress in implementation of the reform agenda designed to address these failings. It also looks at whether shifts in market structure and risks in the global financial system since the crisis have been in the direction the new regulatory agenda intended, that is, toward greater safety. It finds that the broad agenda set by the international community has given rise to new standards that have contributed to a more resilient financial system—one that is less leveraged, more liquid, and better and more intensively supervised, especially at large banks. The forms of shadow banking more closely related to the global financial crisis have been curtailed, and most countries now have macroprudential authorities and some tools with which to oversee and contain risks to the whole financial system. The chapter also identifies areas in which consolidation or further progress is needed and warns against rolling back reforms, which might make the global financial system less safe.
The October 2018 Global Financial Stability Report (GFSR) finds that global near-term risks to financial stability have increased somewhat, reflecting mounting pressures in emerging market economies and escalating trade tensions. Near-term risks to the global financial system, while still moderate, could increase significantly. An intensification of concerns about emerging markets, a broader rise in trade tensions, the realization of political and policy uncertainty, or a faster-than-expected tightening in monetary normalization could all lead to a sharp tightening in financial conditions. Medium-term financial stability risks remain elevated, driven by high nonfinancial sector leverage in advanced economies and rising external borrowing in emerging market economies. Although the global banking system is stronger than before the global financial crisis, it is exposed to these highly indebted borrowers, as well as to opaque and illiquid assets and foreign currency rollover risks. These factors all raise the urgency for policymakers to step up efforts to boost the financial system’s resilience by completing the financial regulatory reform agenda as well as developing and deploying macroprudential policy tools.
Chapter 2 takes stock of global regulatory reform 10 years after the global financial crisis. It reviews the main precrisis failings in financial sector oversight and assesses the progress in implementation of the reform agenda designed to address them. It also looks at whether shifts in market structure and risks in the global financial system since the crisis have been in the direction the new regulatory agenda intended, that is, toward greater safety. It finds that the broad agenda set by the international community has given rise to new standards that have contributed to a more resilient financial system—less leveraged, more liquid, and better and more intensively supervised, especially at large banks. The forms of shadow banking more closely related to the global financial crisis have been curtailed, and most countries now have macroprudential authorities and some tools with which to oversee and contain risks to the whole financial system. The chapter also identifies areas in which consolidation or further progress is needed, such as completing implementation of the leverage ratio and ensuring adequate toolkits for containing systemic risk. Although evaluation of the impact of reforms is advisable, the chapter warns against a rollback that might make the global financial system less safe. Finally, regulators and supervisors must remain attentive to new risks, including fintech and cybersecurity, but also must continue their vigilance on the perimeter of prudential regulation.
