The Financial System Is Stronger, but New Vulnerabilities Have Emerged in the Decade Since the Crisis

IMF Blog, October 9, 2018

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The Financial System Is Stronger, but New Vulnerabilities Have Emerged in the Decade Since the Crisis

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Bibliographic details

• Authors: Tobias Adrian
• Published: October 9, 2018

Overview

• Global expansion has plateaued while easy monetary policies continue to support growth.
• Short-term risks to the financial system have increased somewhat over the past six months, driven by escalated trade tensions, increased policy uncertainties in a number of countries, and financial market pressures in some emerging market economies.
• The financial system is stronger today than before the global financial crisis thanks to a decade of reform and recovery, but vulnerabilities continue to build and the system remains untested.

Emerging vulnerabilities and market conditions

• Robust risk appetite has continued to support rising asset prices in major financial markets; financial conditions have remained relatively easy despite US Federal Reserve policy rate hikes.
• The stronger dollar and higher US interest rates have made overseas borrowing more expensive for emerging markets, especially those with larger credit needs and weaker economic conditions or policy frameworks.
• Asset valuations remain stretched across several sectors and regions.
• Underwriting standards are deteriorating in some areas of credit intermediation.
• Some global banks hold large amounts of more illiquid and opaque assets.

Risk scenarios and probabilities

• If pressures on emerging market economies broaden and intensify, financial stability risks would increase significantly.
• The analysis suggests that—in the medium term—there is a 5 percent probability that emerging market economies will experience portfolio debt outflows of $100 billion or more. That is broadly similar in magnitude to outflows experienced during the crisis.
• Other sources of sharp increases in stability risks include:
  • A broader escalation of trade tensions.
  • A no-deal Brexit.
  • Renewed concerns about fiscal policy in some highly indebted euro area countries.
  • A faster-than-expected normalization of monetary policy in advanced economies.

Key statistics

• Debt owed by governments, companies, and households in economies with globally systemically important financial sectors has risen from around 200 percent of GDP a decade ago to almost 250 percent today.
• Probability of sizable EM portfolio debt outflows in the medium term: 5 percent.
• Magnitude of concern for those outflows: $100 billion or more.

Policy recommendations

• Micro-prudential (firm level) policies should aim to strengthen bank balance sheets against solvency and liquidity risks.
• Broad-based macroprudential tools should be used more actively where financial conditions remain accommodative and vulnerabilities are high. Example: the countercyclical capital buffer (which aims to increase bank capital when borrowing is rising in the economy).
• Develop and deploy new macroprudential tools to address vulnerabilities outside the banking sector, including:
  • Ensuring sound underwriting standards in nonbank credit intermediation.
  • Tackling liquidity risks posed by asset managers.
• For emerging market economies:
  • Reduce vulnerabilities and maintain robust policies and sound policy frameworks.
  • Build and maintain adequate foreign exchange reserves and use these reserves judiciously.
• Regulators and supervisors should:
  • Respond to new threats, including cyber risks.
  • Support fintech’s potential contribution to innovation, efficiency, and inclusion while safeguarding against risks to the financial system.
• Complete the financial regulatory reform agenda and avoid rollback of reforms.
• Strengthen international cooperation to maintain global financial stability and foster sustainable economic growth.

Source: Tobias Adrian, "The Financial System Is Stronger, but New Vulnerabilities Have Emerged in the Decade Since the Crisis," IMF blog, October 9, 2018.

Content in this bundle

• 随着经济风险变为现实，全球增长进入平顶期; IMF博客; 2018 年10 月8 日
  • 随着经济风险变为现实，全球增长进入平顶期; IMF博客; 2018 年10 月8 日 (Markdown version)
  • 随着经济风险变为现实，全球增长进入平顶期; IMF博客; 2018 年10 月8 日 (PDF)
• 危机后的十年，金融体系更为强健，但新的脆弱性已经出现; IMF博客; 2018 年10 月10 日
  • 危机后的十年，金融体系更为强健，但新的脆弱性已经出现; IMF博客; 2018 年10 月10 日 (Markdown version)
  • 危机后的十年，金融体系更为强健，但新的脆弱性已经出现; IMF博客; 2018 年10 月10 日 (PDF)
• 危機後10年を経て金融システムはより強靱に しかし、新たな脆弱性も; トビアス・エイドリアン著 IMFブログ　2018年10月9日
  • 危機後10年を経て金融システムはより強靱に しかし、新たな脆弱性も; トビアス・エイドリアン著 IMFブログ　2018年10月9日 (Markdown version)
  • 危機後10年を経て金融システムはより強靱に しかし、新たな脆弱性も; トビアス・エイドリアン著 IMFブログ　2018年10月9日 (PDF)
• Sistem Keuangan Sudah Lebih Kuat, namun Kerentanan Baru telah Muncul
  • Sistem Keuangan Sudah Lebih Kuat, namun Kerentanan Baru telah Muncul (Markdown version)
  • Sistem Keuangan Sudah Lebih Kuat, namun Kerentanan Baru telah Muncul (PDF)
• 101018r
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  • 101018r (PDF)

References

• عربي
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• https://www.imf.org/wp-content/uploads/2018/10/BLOG-1024x600-GFSR-CH-1-Autodealerhsip-in-Woodside-New-York-Richard-B.-Levine-Newscom-lrphotos100458.jpg
• Global Financial Stability Report
• https://www.imf.org/wp-content/uploads/2018/10/CHART-1.jpg
• https://www.imf.org/wp-content/uploads/2018/10/eng-october-5-draft-gfsr1-revised.jpg
• Global Financial Stability Report
• A Decade After Lehman, the Financial System Is Safer. Now We Must Avoid Reform Fatigue
• Lasting Effects: The Global Economic Recovery 10 Years After the Crisis
• Ten Years After Lehman: Lessons Learned and Challenges Ahead