Global Financial Stability Report, October 2023: Financial and Climate Policies for a High-Interest-Rate Era
Global Financial Stability Report, October 2023
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- Global Financial Stability Report, October 2023: Financial and Climate Policies for a High-Interest-Rate Era
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Bibliographic details
- Published: October 10, 2023
Overall assessment and key highlights
- With core inflation still high in many advanced economies, central banks may need to keep monetary policy tighter for longer than is currently priced in markets.
- In emerging market economies, progress on lowering inflation appears to be more advanced, though there are discrepancies across regions.
- Optimism about a “soft landing” of the global economy has eased financial conditions since the April 2023 Global Financial Stability Report: stock markets have rallied, credit spreads have remained tight, and emerging market currencies have appreciated.
- Upside surprises to the inflation outlook would challenge the soft-landing narrative, resulting in a potentially sharp repricing of assets.
- Acute stress in the global banking system has subsided, but a weak tail of banks remains in some countries.
- The global credit cycle has started to turn as borrowers’ debt repayment capacity diminishes and credit growth slows.
- Risks to global growth are skewed to the downside, similar to the assessment in April.
Key deliverables on the page: Full Report, Executive Summary, Foreword, Press Conference, Blog by IMF's Financial Counsellor Tobias Adrian, Chapters and Data, Videos.
Chapter 1 — Soft Landing or Abrupt Awakening?
- Main finding: Risks to global growth remain skewed to the downside; cracks in the financial system may become worrisome fault lines if the market-expected soft landing does not materialize.
- Inflation and monetary policy:
- Core inflation still high in many advanced economies; central banks may need to keep policy tighter for longer than priced in markets.
- Emerging market economies show more advanced progress on lowering inflation, with regional discrepancies.
- Financial market reaction since April 2023:
- Stock markets have rallied.
- Credit spreads have remained tight.
- Emerging market currencies have appreciated.
- Risk channel: Upside surprises to inflation could trigger a sharp repricing of assets, testing financial-system resilience.
- Ancillary content: Blog by Tobias Adrian; Chapter 1 Data.
Chapter 2 — A New Look at Global Banking Vulnerabilities
- Scope: Fresh assessment of vulnerabilities in a higher-for-longer environment using an enhanced global stress test and newly developed market-based indicators.
- Stress-test findings:
- The enhanced global stress test uncovers many banks in advanced economies with the potential for significant capital losses, driven by marking-to-market securities and provisioning for loan losses.
- Market-based indicators:
- Indicators point to a substantial group of smaller banks at risk in the United States.
- Risks are increasing in Asia, China, and Europe.
- Policy recommendations:
- Policy makers should sharpen their risk assessments.
- Increase the severity of stress tests.
- Increase capital held against interest rate risks.
- Banks should ensure they are prepared to access central bank facilities in times of stress.
- Ancillary content: Blog by IMF Staff; Online Annexes.
Chapter 3 — Financial Sector Policies to Unlock Private Climate Finance in EMDEs
- Core problem: The private sector will have to cover a major share of the large climate mitigation investment needs in emerging market and developing economies (EMDEs).
- Obstacles to private climate finance in EMDEs:
- Often low credit rating, limiting the potential investor base.
- Climate policies of major banks and insurance companies are not yet aligned with net zero emission targets.
- Despite growth in sustainable investment funds, a small share of invested money is dedicated to creating a positive climate impact.
- Political hurdles to implementing carbon pricing and EMDE-specific challenges.
- Policy mix required:
- Structural policies to lower the cost of capital, mobilize domestic financial resources, and improve credit ratings in EMDEs.
- Financial sector policies that refocus on creating climate impact and consider EMDE-specific circumstances.
- In low-income countries, additional international support and policy initiative will be needed.
- The IMF Resilience and Sustainability Facility can support reforms to help create an enabling investment environment and attract private capital.
- Ancillary content: Panel Discussion; Chapter 3 Data.
Multimedia and events listed
- IMF Financial Counsellor Tobias Adrian on the October 2023 Global Financial Stability Report — October 10, 2023 — 2:43
- Press Briefing: Global Financial Stability Report, October 2023 — 44:22
- Unlocking Private Climate Finance for Emerging Market and Developing Economies — October 2, 2023 — 1:01:13
Source: Global Financial Stability Report, October 2023: Financial and Climate Policies for a High-Interest-Rate Era
Content in this bundle
- Chapter 1 Data
- Chapter 3 Data
- Chapter 1
- Chapter 2
- Chapter 2 Online Annex
- Chapter 3
- Chapter 3 Online Annex
- Executive Summary
- Foreword
- GLOBAL FINANCIAL STABILITY REPORT — Key Highlights 2023 OCT — Soft landing or abrupt awakening
- Full Report