{
  "title": "Global Financial Stability Improves; Getting the Policy Mix Right to Sustain Gains",
  "publication": "IMF Blog, April 19, 2017",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2017/04/19/global-financial-stability-improves-getting-policy-mix-right-needed-to-sustain-gains",
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  "summary": "Risks: - A sharp rise in interest rates—for example, owing to larger budget deficits—could push corporate debt servicing capacity to its weakest level since the global financial crisis. - Under such a scenario, companies with some $4 trillion of assets may find servicing their debt challenging. This",
  "sections": [
    {
      "heading": "Overall assessment and context",
      "content": "- The world’s financial system has become safer and more stable since the last assessment six months ago.\n- Economic activity has gained momentum; the outlook has improved and hopes for reflation have risen.\n- Monetary and financial conditions remain highly accommodative.\n- Investor optimism over new policies under discussion in the United States has boosted asset prices.\n- These conclusions are drawn from the IMF’s latest Global Financial Stability Report."
    },
    {
      "heading": "The right policy mix — high-level guidance",
      "content": "- Governments in the United States, Europe, China, and emerging markets should:\n  - Prevent fiscal imbalances.\n  - Resist calls for higher trade barriers.\n  - Maintain global cooperation on regulations needed to make the financial system safer.\n- Completing the global regulatory reform agenda is vital and relies on continued multilateral cooperation and coordination."
    },
    {
      "heading": "United States — findings and policy implications",
      "content": "Findings:\n- Discussions of corporate tax reform, infrastructure spending, and reductions in regulatory burdens have boosted business and investor confidence.\n- Investment has languished for more than 15 years.\n- Many firms with capacity to increase capital spending have instead focused on financial risk taking (acquisition of financial assets and using debt to pay out shareholders).\n- Firms in sectors accounting for almost half of U.S. investment—namely energy, utilities, and real estate—are already highly levered.\n\nRisks:\n- A sharp rise in interest rates—for example, owing to larger budget deficits—could push corporate debt servicing capacity to its weakest level since the global financial crisis.\n- Under such a scenario, companies with some $4 trillion of assets may find servicing their debt challenging. This is almost a quarter of the assets analyzed.\n\nPolicy recommendations:\n- Ensure corporate tax measures encourage companies to invest in new machines, computers and equipment rather than engage in financial risk taking.\n- Preemptively address areas where risk taking appears excessive and help ensure healthy corporate balance sheets.\n- Aim to spur economic growth while avoiding imbalances that could have negative consequences for the rest of the world."
    },
    {
      "heading": "Emerging markets — vulnerabilities and policy steps",
      "content": "Findings:\n- A sudden reversal of market sentiment could prompt capital outflows and hurt growth prospects.\n- A global shift toward protectionism could also harm emerging markets.\n- Debt held by the weakest firms could rise by as much as $230 billion under adverse scenarios.\n- Banks in some countries would need to rebuild their buffers of capital and provisions; these are banks already experiencing a decline in asset quality after a long credit boom.\n\nPolicy recommendations:\n- Improve corporate-restructuring mechanisms.\n- Monitor corporate vulnerabilities.\n- Ensure banks maintain healthy buffers."
    },
    {
      "heading": "China — credit growth concerns",
      "content": "Findings:\n- Credit in relation to China’s economy has more than doubled in less than a decade, to more than 200 percent.\n- Credit booms this big can be dangerous; the longer they last, the more dangerous they become.\n- The Chinese authorities continue to adjust policies to limit the growth of the banking and shadow banking systems.\n\nPolicy implications:\n- More needs to be done to slow credit growth.\n- The authorities’ progress and success is essential for global financial stability."
    },
    {
      "heading": "Europe — bank profitability and structural issues",
      "content": "Findings:\n- Policymakers have strengthened the banking system via higher capital requirements, more robust regulation and enhanced supervision.\n- Over the past six months, bank equity prices have risen as yield curves steepened and the economic recovery has firmed.\n- A cyclical recovery is unlikely to fully resolve the profitability challenge many banks in Europe face.\n- Weak profitability limits banks’ ability to retain capital, making it harder for them to weather shocks and increasing risks to financial stability.\n- The Global Financial Stability Report examines European banks representing $35 trillion in assets and divides them into three groups—global, Europe-focused, and domestic.\n- Domestic banks face the greatest challenges: almost three-quarters of them had very weak returns in 2016.\n- “Overbanking” is a problem for many: weak banks with low capital buffers, too many banks with a regional focus and narrow mandate, or too many branches with low efficiency.\n\nPolicy recommendations:\n- Promote bank consolidation and branch rationalization.\n- Reform bank business models.\n- Address nonperforming loans."
    },
    {
      "heading": "Conclusion — sustaining gains",
      "content": "- Getting the policy mix right will provide a firm foundation for the global financial system and cement recent improvements in the outlook for growth and financial stability.\n- Policy makers in the U.S., Europe, China and emerging markets all have roles to play.\n\nSource: Global Financial Stability Improves; Getting the Policy Mix Right to Sustain Gains — Tobias Adrian, April 19, 2017.\n\n---\n\n Content in this bundle\n\n- 全球金融稳定状况改善；实施适当政策组合，继续保持稳定\n  - 全球金融稳定状况改善；实施适当政策组合，继续保持稳定 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 全球金融稳定状况改善；实施适当政策组合，继续保持稳定 (PDF){rel=\"external\" type=\"application/pdf\"}\n- 世界の金融安定性が改善; その維持に向けた正しいポリシーミ ックスとは :  トビアズ・エイドリアン; IMFブログ 2017年4月19日掲載\n  - 世界の金融安定性が改善; その維持に向けた正しいポリシーミ ックスとは :  トビアズ・エイドリアン; IMFブログ 2017年4月19日掲載 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 世界の金融安定性が改善; その維持に向けた正しいポリシーミ ックスとは :  トビアズ・エイドリアン; IMFブログ 2017年4月19日掲載 (PDF){rel=\"external\" type=\"application/pdf\"}\n- 041917ar\n  - 041917ar (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - 041917ar (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Global Financial Stability Report\n\nSource: https://www.imf.org/en/blogs/articles/2017/04/19/global-financial-stability-improves-getting-policy-mix-right-needed-to-sustain-gains"
    }
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    "Authors: Tobias Adrian",
    "Published: April 19, 2017",
    "The world’s financial system has become safer and more stable since the last assessment six months ago.",
    "Economic activity has gained momentum; the outlook has improved and hopes for reflation have risen.",
    "Monetary and financial conditions remain highly accommodative.",
    "Investor optimism over new policies under discussion in the United States has boosted asset prices.",
    "These conclusions are drawn from the IMF’s latest Global Financial Stability Report.",
    "Governments in the United States, Europe, China, and emerging markets should:",
    "Completing the global regulatory reform agenda is vital and relies on continued multilateral cooperation and coordination.",
    "Discussions of corporate tax reform, infrastructure spending, and reductions in regulatory burdens have boosted business and investor confidence.",
    "Investment has languished for more than 15 years.",
    "Many firms with capacity to increase capital spending have instead focused on financial risk taking (acquisition of financial assets and using debt to pay out shareholders).",
    "Firms in sectors accounting for almost half of U.S. investment—namely energy, utilities, and real estate—are already highly levered.",
    "A sharp rise in interest rates—for example, owing to larger budget deficits—could push corporate debt servicing capacity to its weakest level since the global financial crisis.",
    "Under such a scenario, companies with some $4 trillion of assets may find servicing their debt challenging. This is almost a quarter of the assets analyzed.",
    "Ensure corporate tax measures encourage companies to invest in new machines, computers and equipment rather than engage in financial risk taking.",
    "Preemptively address areas where risk taking appears excessive and help ensure healthy corporate balance sheets.",
    "Aim to spur economic growth while avoiding imbalances that could have negative consequences for the rest of the world.",
    "A sudden reversal of market sentiment could prompt capital outflows and hurt growth prospects.",
    "A global shift toward protectionism could also harm emerging markets.",
    "Debt held by the weakest firms could rise by as much as $230 billion under adverse scenarios.",
    "Banks in some countries would need to rebuild their buffers of capital and provisions; these are banks already experiencing a decline in asset quality after a long credit boom.",
    "Improve corporate-restructuring mechanisms.",
    "Monitor corporate vulnerabilities.",
    "Ensure banks maintain healthy buffers.",
    "Credit in relation to China’s economy has more than doubled in less than a decade, to more than 200 percent.",
    "Credit booms this big can be dangerous; the longer they last, the more dangerous they become.",
    "The Chinese authorities continue to adjust policies to limit the growth of the banking and shadow banking systems.",
    "More needs to be done to slow credit growth.",
    "The authorities’ progress and success is essential for global financial stability.",
    "Policymakers have strengthened the banking system via higher capital requirements, more robust regulation and enhanced supervision.",
    "Over the past six months, bank equity prices have risen as yield curves steepened and the economic recovery has firmed.",
    "A cyclical recovery is unlikely to fully resolve the profitability challenge many banks in Europe face.",
    "Weak profitability limits banks’ ability to retain capital, making it harder for them to weather shocks and increasing risks to financial stability.",
    "The Global Financial Stability Report examines European banks representing $35 trillion in assets and divides them into three groups—global, Europe-focused, and domestic.",
    "Domestic banks face the greatest challenges: almost three-quarters of them had very weak returns in 2016.",
    "“Overbanking” is a problem for many: weak banks with low capital buffers, too many banks with a regional focus and narrow mandate, or too many branches with low efficiency.",
    "Promote bank consolidation and branch rationalization.",
    "Reform bank business models.",
    "Address nonperforming loans.",
    "Getting the policy mix right will provide a firm foundation for the global financial system and cement recent improvements in the outlook for growth and financial stability.",
    "Policy makers in the U.S., Europe, China and emerging markets all have roles to play.",
    "**全球金融稳定状况改善；实施适当政策组合，继续保持稳定**",
    "**世界の金融安定性が改善; その維持に向けた正しいポリシーミ ックスとは :  トビアズ・エイドリアン; IMFブログ 2017年4月19日掲載**",
    "**041917ar**",
    "[Global Financial Stability Report](http://www.imf.org/en/publications/gfsr/issues/2017/03/30/global-financial-stability-report-april-2017)"
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