## Time Waits for No Man: How to Secure Financial Stability in 2011

_IMF Blog, January 25, 2011_

## Source details

**Canonical URL:** [Time Waits for No Man: How to Secure Financial Stability in 2011](https://www.imf.org/en/blogs/articles/2011/01/25/how-to-secure-financial-stability-in-2011)

## Other formats

- [Markdown version](/en/blogs/articles/2011/01/25/how-to-secure-financial-stability-in-2011/index.md)
- [Structured JSON version](/en/blogs/articles/2011/01/25/how-to-secure-financial-stability-in-2011/index.json)
- [Bundle manifest](/en/blogs/articles/2011/01/25/how-to-secure-financial-stability-in-2011/bundle-manifest.json)

## Bibliographic details
- Authors: JosVials
- Published: January 25, 2011

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### Key messages
- More than three years after the onset of the financial crisis, global financial stability is still not assured.
- Policymakers need to step up efforts to tackle pressing policy challenges, such as sovereign risk, banking system vulnerabilities, and increased global capital flows.
- Press ahead with structural solutions to longstanding financial problems.

### Context and presentation
- Presented by José Viñals in Johannesburg, South Africa.
- Date: January 25, 2011.

### Financial stability challenges
- Sovereign risk
  - High public debt levels have sustained market concerns about sovereign risk.
  - Spillovers have affected a greater number of countries, mostly in the euro area.
  - An adverse feedback loop has developed between banking and sovereign credit risks in some euro area countries: the fate of some banks is increasingly intertwined with that of their sovereign—and vice versa.
- Banking system fragilities
  - Markets are questioning the quality of many bank assets, reflecting concerns about banks’ exposure to countries facing sovereign pressures and exposure to real estate loans.
  - Banks face significant funding needs over the next two years; sovereigns will also need to refinance their debt over that period, creating competition for limited funding resources.
  - Many banks still need to raise their capital levels and improve the quality of their capital to reassure investors and to meet the more stringent Basel III standards.
  - If unresolved, these banking challenges would hinder the provision of credit to companies and households and would hurt the global economic recovery.
- Capital inflows to emerging market economies
  - Rapid rebound in capital inflows can fuel asset price bubbles and strain absorptive capacity of local financial systems.
  - Current assessment: at the early stages of such a cycle, but vigilance is required.

### Policy priorities and recommendations
- General
  - Time is of the essence in addressing immediate policy challenges—particularly in the euro area—and in finding a better balance between macroeconomic and structural financial policies.
  - Without timely policy responses, global financial stability and sustainable growth will remain elusive.
- Europe
  - Break the adverse feedback loop between sovereigns and banks.
  - Contain sovereign risk through credible, medium-term fiscal consolidation strategies.
  - Repair the financial system via a comprehensive plan to reduce uncertainty about banks and help restore investor confidence, including:
    - improved bank transparency;
    - greater firepower for the European Financial Stability Facility (EFSF);
    - a decisive pursuit of recapitalization and restructuring of banks;
    - better economic governance for the European Union.
- United States
  - Put in place a credible strategy for medium-term fiscal consolidation to avoid a potential, sharp rise in long-term interest rates.
  - Increase efforts to address effects of still-damaged real estate markets on banks.
- Emerging markets
  - Act now to avoid future crises by maintaining the appropriate mix of macroeconomic and prudential financial policies to manage capital inflows.
  - Deepen and strengthen local capital markets and market infrastructures to become more resilient.
- Global regulatory agenda
  - Ensure continued progress on the global financial policy agenda and that financial systems adapt to regulatory reform.
  - Adopt new regulations consistently across the world, including on systemically important financial institutions and the so-called “shadow” banking sector.
  - Improve supervision and bank resolution regimes to work more effectively within—and across—national borders to safeguard financial stability.

*Source: José Viñals, "Time Waits for No Man: How to Secure Financial Stability in 2011", January 25, 2011.*

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## Content in this bundle

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## References

- [latest views on global financial stability](http://www.imf.org/External/Pubs/FT/fmu/eng/2011/01/index.htm)

_Source: https://www.imf.org/en/blogs/articles/2011/01/25/how-to-secure-financial-stability-in-2011_