{
  "title": "Global Financial Stability: Vulnerabilities, Legacies, and Policy Challenges",
  "publication": "IMF Blog, October 7, 2015",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2015/10/07/global-financial-stability-vulnerabilities-legacies-and-policy-challenges",
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  "summary": "Global financial stability is \"not yet assured\" and downside risks prevail.",
  "sections": [
    {
      "heading": "Overall assessment",
      "content": "- Global financial stability is \"not yet assured\" and downside risks prevail.\n- Financial stability has improved in advanced economies since the April Global Financial Stability Report due to a broadening and solidifying economic recovery.\n- The Federal Reserve has indicated that monetary policy lift-off is close in the United States as the economic preconditions are nearly in place.\n- The European Central Bank's policies \"have gained traction\" and credit conditions in the euro area are improving.\n- Risks have rotated toward emerging economies; growth in emerging markets is \"slowing for the fifth year in a row.\""
    },
    {
      "heading": "Emerging market vulnerabilities",
      "content": "- Corporate and bank balance sheets in emerging markets are \"stretched.\"\n- Estimated overborrowing in emerging markets: up to three trillion dollars.\n- Higher private sector leverage and greater exposure to global financial conditions increase susceptibility to economic downturns, capital outflows, and deteriorating credit quality.\n- China faces a delicate transition: shift to more consumption-driven growth, orderly deleveraging of high debt levels, and movement toward a more market-based system."
    },
    {
      "heading": "Crisis legacies in advanced economies",
      "content": "- Euro area priorities:\n  - Tackle sovereign and banking vulnerabilities.\n  - Fill gaps in the financial architecture.\n  - Complete the banking union and advance the capital markets union.\n  - Resolving nonperforming loans in euro area banks could deliver about three percent of loans in new lending capacity, amounting to around €600 billion euros.\n- United States:\n  - Embark on the first policy rate increase in nine years; the process is \"most-telegraphed, although unprecedented.\"\n  - Important transition for global markets."
    },
    {
      "heading": "Market liquidity, leverage, and amplification risks",
      "content": "- Market liquidity \"has become less resilient.\"\n- Extraordinary accommodative monetary policies have compressed risk premia across asset markets; risk premia could decompress in a disorderly way, causing fire sales, redemptions, and more volatility.\n- Leverage in investment funds can amplify shocks: analysis found $1.5 trillion dollars in embedded leverage in bond funds through derivatives."
    },
    {
      "heading": "Economic scenarios and stakes",
      "content": "- Objective: achieve a \"successful normalization\" of monetary and financial conditions to secure financial stability and strengthen the economic recovery.\n- Alternative: \"failed normalization\"—policy missteps and/or adverse shocks could result in prolonged global market turmoil and stall the recovery.\n- The difference between the successful and failed normalization scenarios amounts to nearly three percent of global output by 2017.\n- \"Three percent of global output is at stake.\""
    },
    {
      "heading": "Urgent policy recommendations",
      "content": "- Monetary policy:\n  - Monetary policies in key advanced economies must remain accommodative and responsive.\n  - Euro area and Japan should continue countering downward price pressures.\n  - The United States should wait to raise policy rates \"until there are further signs of inflation rising steadily, with continued strength in the labor market.\"\n  - Subsequent policy rate increases should be gradual and well communicated.\n- Euro area structural and banking reforms:\n  - Do not rely on the European Central Bank alone; complete the banking union and advance the capital markets union.\n  - Comprehensively tackle nonperforming loans and the corporate debt overhang to strengthen banks, bolster market confidence, and improve the outlook.\n- China:\n  - Rebalancing and deleveraging require great care.\n  - Deleveraging the corporate sector and enhancing market discipline will entail corporate defaults, exits of nonviable firms, and write-offs on nonperforming loans, requiring further strengthening of banks.\n  - Moving decisively will ultimately prove less costly than trying to grow out of the problem.\n- Emerging markets:\n  - Get ahead of the credit cycle with immediate prudential attention to corporates and banks.\n  - Maintain sovereign investment-grade status through appropriate measures.\n  - Use available policy buffers nimbly and judiciously to manage financial contagion outbreaks.\n- Market structure and asset management:\n  - Safeguard against market illiquidity and strengthen financial market structures.\n  - Enhance oversight of liquidity in the asset-management industry to avoid fire sales and a rush for redemptions.\n- Collective action:\n  - A collective effort to deliver an urgent policy upgrade is needed to face rising challenges, ensure financial stability, and improve growth prospects.\n\nJosé Viñals, October 7, 2015 — Global Financial Stability: Vulnerabilities, Legacies, and Policy Challenges\n\n---\n\n Content in this bundle\n\n- 全球金融稳定：脆弱性、遗留问题和政策挑战; iMFdirect博客; 2015年10月7日\n  - 全球金融稳定：脆弱性、遗留问题和政策挑战; iMFdirect博客; 2015年10月7日 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 全球金融稳定：脆弱性、遗留问题和政策挑战; iMFdirect博客; 2015年10月7日 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Full Report\n  - Full Report (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Full Report (PDF){rel=\"external\" type=\"application/pdf\"}\n- Глобальная финансовая стабильность: факторы уязвимости, последствия и проблемы политики\n  - Глобальная финансовая стабильность: факторы уязвимости, последствия и проблемы политики (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Глобальная финансовая стабильность: факторы уязвимости, последствия и проблемы политики (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- April 2015 report\n\nSource: https://www.imf.org/en/blogs/articles/2015/10/07/global-financial-stability-vulnerabilities-legacies-and-policy-challenges"
    }
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    "Authors: Jose-Vinals",
    "Published: October 7, 2015",
    "Global financial stability is \"not yet assured\" and downside risks prevail.",
    "Financial stability has improved in advanced economies since the April Global Financial Stability Report due to a broadening and solidifying economic recovery.",
    "The Federal Reserve has indicated that monetary policy lift-off is close in the United States as the economic preconditions are nearly in place.",
    "The European Central Bank's policies \"have gained traction\" and credit conditions in the euro area are improving.",
    "Risks have rotated toward emerging economies; growth in emerging markets is \"slowing for the fifth year in a row.\"",
    "Corporate and bank balance sheets in emerging markets are \"stretched.\"",
    "Estimated overborrowing in emerging markets: up to three trillion dollars.",
    "Higher private sector leverage and greater exposure to global financial conditions increase susceptibility to economic downturns, capital outflows, and deteriorating credit quality.",
    "China faces a delicate transition: shift to more consumption-driven growth, orderly deleveraging of high debt levels, and movement toward a more market-based system.",
    "Euro area priorities:",
    "United States:",
    "Market liquidity \"has become less resilient.\"",
    "Extraordinary accommodative monetary policies have compressed risk premia across asset markets; risk premia could decompress in a disorderly way, causing fire sales, redemptions, and more volatility.",
    "Leverage in investment funds can amplify shocks: analysis found $1.5 trillion dollars in embedded leverage in bond funds through derivatives.",
    "Objective: achieve a \"successful normalization\" of monetary and financial conditions to secure financial stability and strengthen the economic recovery.",
    "Alternative: \"failed normalization\"—policy missteps and/or adverse shocks could result in prolonged global market turmoil and stall the recovery.",
    "The difference between the successful and failed normalization scenarios amounts to nearly three percent of global output by 2017.",
    "\"Three percent of global output is at stake.\"",
    "Monetary policy:",
    "Euro area structural and banking reforms:",
    "China:",
    "Emerging markets:",
    "Market structure and asset management:",
    "Collective action:",
    "**全球金融稳定：脆弱性、遗留问题和政策挑战; iMFdirect博客; 2015年10月7日**",
    "**Full Report**",
    "**Глобальная финансовая стабильность: факторы уязвимости, последствия и проблемы политики**",
    "[April 2015 report](http://www.imf.org/External/Pubs/FT/GFSR/2015/01/index.htm)"
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