{ "title": "Risks to Financial Stability Increase, Bold Action Needed", "publication": "IMF Blog, July 17, 2012", "sourceUrl": "https://www.imf.org/en/blogs/articles/2012/07/17/risks-to-financial-stability-increase-bold-action-needed", "canonical": "https://www.imf.org/en/blogs/articles/2012/07/17/risks-to-financial-stability-increase-bold-action-needed", "overlayPath": "/en/blogs/articles/2012/07/17/risks-to-financial-stability-increase-bold-action-needed/index.md", "summary": "Author: José Viñals", "sections": [ { "heading": "Overview", "content": "- Author: José Viñals\n- Date: July 17, 2012\n- Three key messages from the Global Financial Stability Report update:\n - Financial stability risks have increased because of escalating funding and market pressures and a weak growth outlook.\n - Measures agreed at the recent European leaders’ summit provide significant steps to address the immediate crisis, but more is needed; timely implementation and further progress on banking and fiscal unions must be a priority.\n - Time is running out; strong political leadership and tough decisions are needed now to restore confidence and ensure lasting financial stability in both advanced and emerging economies." }, { "heading": "Why financial stability risks have increased", "content": "- Government bond yields in Southern Europe have sharply increased, while funding conditions for many European banks have deteriorated.\n- The beneficial effects of the European Central Bank’s extraordinary long-term refinancing operations have decreased in recent months amid renewed policy uncertainty and growing concerns about the health of banks, leading to a substantial flight to safe assets.\n- Financial fragmentation has exacerbated the adverse feedback loop between weak banks and governments and threatens to undermine the currency union:\n - Private capital outflows have continued to erode the foreign investor base for government debt in countries such as Italy and Spain.\n - Governments have increased their reliance on domestic banks to finance their public debt.\n - Banks have increasingly turned to the European Central Bank to meet their liquidity needs as wholesale funding markets remain closed to them.\n- Sovereign and bank funding pressures have spilled over to the corporate sector in the periphery of the euro area:\n - Corporates face rising wholesale funding costs, a drop in bank lending, and a large amount of maturing bonds in the near term that will likely exacerbate their funding squeeze.\n- Growth prospects in other advanced economies and emerging markets are a bit weaker, leaving them more vulnerable to spillovers from the euro area and reducing their ability to address home-grown fiscal and financial vulnerabilities.\n- Uncertainties about the fiscal outlook in the United States present a particular latent risk to global financial stability." }, { "heading": "Policy priorities — euro area", "content": "- Immediate stabilization, deeper integration, and policies to support growth are needed.\n- Stabilization actions recommended:\n - Strengthen the balance sheets of viable banks, where needed, through recapitalizations and restructurings; in some cases this may involve direct equity injections from Europe’s rescue fund, the European Stability Mechanism.\n - Strengthen sovereign balance sheets by implementing well-timed fiscal consolidation strategies and by enacting sweeping structural reforms.\n - Maintain supportive monetary and liquidity policies.\n - Consider actions at the euro area level to stabilize funding conditions in sovereign debt markets, such as the reactivation of the European Central Bank’s Securities Markets Program.\n- Further integration requires progress toward a full-fledged banking union and deeper fiscal integration:\n - The planned, unified supervisory framework is the first building block of a future banking union.\n - Additional building blocks will be needed, including a pan-European deposit insurance guarantee scheme and bank resolution mechanism with common backstops." }, { "heading": "Policy priorities — United States", "content": "- The U.S. is facing an important fiscal turning point: by early next year, the U.S. is expected to reach the current debt ceiling.\n- Financial market consensus suggests that the ceiling will be raised in time to avert a default, but a significant adverse market reaction cannot be excluded, especially if there is political gridlock over raising the ceiling.\n- Credible medium-term fiscal consolidation is needed to avoid further sovereign rating downgrades and to preserve the stability of the U.S Treasury market." }, { "heading": "Policy priorities — emerging economies", "content": "- Emerging economies face a twin challenge: dealing with spillovers from advanced economies’ troubles while confronting increasing home-grown vulnerabilities.\n- Observed impacts:\n - Equity markets and capital flows have responded to slowing global growth and euro area spillovers.\n - Home-grown vulnerabilities include rapid bank asset and credit growth in recent years, which may eventually trigger a significant increase in non-performing loans.\n - Slowing domestic growth could erode bank profitability and pose risks to financial stability in countries such as Brazil, China, and India.\n- Recommended focus:\n - Pay special attention to the health of domestic financial systems.\n - Preserve and increase the room for policy maneuver to respond to potentially large domestic and external shocks." }, { "heading": "Key recommendations and closing message", "content": "- Bold political actions are needed to address the balance sheet problems of banks and sovereigns.\n- Monetary policy has bought valuable time and provided essential liquidity to financial systems, but solvency concerns for banks and governments cannot be addressed through liquidity measures alone.\n- Now is the time for bold and concrete actions in advanced economies to achieve sustained balance sheet repair and institutional reform.\n- Tough decisions will need to be made to restore confidence and ensure lasting financial stability in both advanced and emerging economies.\n\nSource: Risks to Financial Stability Increase, Bold Action Needed — José Viñals, July 17, 2012\n\n---\n\n Content in this bundle\n\n- iMFdirect 博客: 金融稳定风险上升，需要采取果断行动, 2012年7月17日\n - iMFdirect 博客: 金融稳定风险上升，需要采取果断行动, 2012年7月17日 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - iMFdirect 博客: 金融稳定风险上升，需要采取果断行动, 2012年7月17日 (PDF){rel=\"external\" type=\"application/pdf\"}\n- iMFdirect ブログ: 高まる金融不安定化のリスク、果断な措置が必要, 2012年7月17日\n - iMFdirect ブログ: 高まる金融不安定化のリスク、果断な措置が必要, 2012年7月17日 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - iMFdirect ブログ: 高まる金融不安定化のリスク、果断な措置が必要, 2012年7月17日 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Риски для финансовой стабильности усиливаются, требуются решительные меры\n - Риски для финансовой стабильности усиливаются, требуются решительные меры (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Риски для финансовой стабильности усиливаются, требуются решительные меры (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- https://www.imf.org/wp-content/uploads/2011/04/jvspring-2011-gfsr.jpg\n- عربي\n- Global Financial Stability Report\n\nSource: https://www.imf.org/en/blogs/articles/2012/07/17/risks-to-financial-stability-increase-bold-action-needed" } ], "bullets": [ "[Markdown version](/en/blogs/articles/2012/07/17/risks-to-financial-stability-increase-bold-action-needed/index.md)", "[Structured JSON version](/en/blogs/articles/2012/07/17/risks-to-financial-stability-increase-bold-action-needed/index.json)", "[Bundle manifest](/en/blogs/articles/2012/07/17/risks-to-financial-stability-increase-bold-action-needed/bundle-manifest.json)", "Authors: Jose-Vinals", "Published: July 17, 2012", "Author: José Viñals", "Date: July 17, 2012", "Three key messages from the Global Financial Stability Report update:", "Government bond yields in Southern Europe have sharply increased, while funding conditions for many European banks have deteriorated.", "The beneficial effects of the European Central Bank’s extraordinary long-term refinancing operations have decreased in recent months amid renewed policy uncertainty and growing concerns about the health of banks, leading to a substantial flight to safe assets.", "Financial fragmentation has exacerbated the adverse feedback loop between weak banks and governments and threatens to undermine the currency union:", "Sovereign and bank funding pressures have spilled over to the corporate sector in the periphery of the euro area:", "Growth prospects in other advanced economies and emerging markets are a bit weaker, leaving them more vulnerable to spillovers from the euro area and reducing their ability to address home-grown fiscal and financial vulnerabilities.", "Uncertainties about the fiscal outlook in the United States present a particular latent risk to global financial stability.", "Immediate stabilization, deeper integration, and policies to support growth are needed.", "Stabilization actions recommended:", "Further integration requires progress toward a full-fledged banking union and deeper fiscal integration:", "The U.S. is facing an important fiscal turning point: by early next year, the U.S. is expected to reach the current debt ceiling.", "Financial market consensus suggests that the ceiling will be raised in time to avert a default, but a significant adverse market reaction cannot be excluded, especially if there is political gridlock over raising the ceiling.", "Credible medium-term fiscal consolidation is needed to avoid further sovereign rating downgrades and to preserve the stability of the U.S Treasury market.", "Emerging economies face a twin challenge: dealing with spillovers from advanced economies’ troubles while confronting increasing home-grown vulnerabilities.", "Observed impacts:", "Recommended focus:", "Bold political actions are needed to address the balance sheet problems of banks and sovereigns.", "Monetary policy has bought valuable time and provided essential liquidity to financial systems, but solvency concerns for banks and governments cannot be addressed through liquidity measures alone.", "Now is the time for bold and concrete actions in advanced economies to achieve sustained balance sheet repair and institutional reform.", "Tough decisions will need to be made to restore confidence and ensure lasting financial stability in both advanced and emerging economies.", "**iMFdirect 博客: 金融稳定风险上升，需要采取果断行动, 2012年7月17日**", "**iMFdirect ブログ: 高まる金融不安定化のリスク、果断な措置が必要, 2012年7月17日**", "**Риски для финансовой стабильности усиливаются, требуются решительные меры**", "[https://www.imf.org/wp-content/uploads/2011/04/jv_spring-2011-gfsr.jpg](https://www.imf.org/wp-content/uploads/2011/04/jv_spring-2011-gfsr.jpg)", "[عربي](http://blog-montada.imf.org/?p=1638)", "[Global Financial Stability Report](http://www.imf.org/external/pubs/ft/fmu/eng/2012/02/index.htm)" ], "related": [ { "title": "iMFdirect 博客: 金融稳定风险上升，需要采取果断行动, 2012年7月17日", "role": "document", "sourceUrl": "http://www.imf.org/external/chinese/np/blog/2012/071712c.pdf", "summary": { "path": "/external/chinese/np/blog/2012/071712c.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/external/chinese/np/blog/2012/071712c.pdf", "mime": "application/pdf" } }, { "title": "iMFdirect ブログ: 高まる金融不安定化のリスク、果断な措置が必要, 2012年7月17日", "role": "document", "sourceUrl": "http://www.imf.org/external/japanese/np/blog/2012/071712j.pdf", "summary": { "path": "/external/japanese/np/blog/2012/071712j.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/external/japanese/np/blog/2012/071712j.pdf", "mime": "application/pdf" } }, { "title": "Риски для финансовой стабильности усиливаются, требуются решительные меры", "role": "document", "sourceUrl": "http://www.imf.org/external/russian/np/blog/2012/071712r.pdf", 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