{
  "title": "Transcript of Global Financial Stability Report Press Briefing",
  "publication": "IMF News, April 18, 2018",
  "sourceUrl": "https://www.imf.org/en/news/articles/2018/04/18/sm18-tr041818-transcript-of-global-financial-stability-report-press-briefing",
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  "summary": "<p>April 18, 2018</p> <p>Tobias Adrian<br /> Anna Ilyina<br /> Fabio Natalucci<br /> J. Benson Durham<br /> Randa Elnagar</p>",
  "publishDate": "2018-04-18",
  "sections": [
    {
      "heading": "Opening overview",
      "content": "- Date and place: Washington, D.C., April 18, 2018.\n- Participants: Tobias Adrian; Anna Ilyina; Fabio Natalucci; J. Benson Durham; Randa Elnagar.\n- High-level assessment:\n  - Global economy shows broad-based momentum.\n  - Short-term risks to financial stability have increased; medium-term risks remain elevated.\n  - Easy financial conditions continue to support short-term growth despite recent equity volatility and trade policy tensions.\n  - Growth-at-risk analysis indicates that under a severely adverse scenario, growth could be negative three years from now."
    },
    {
      "heading": "Three main vulnerabilities identified",
      "content": "- Stretched valuations across many asset classes:\n  - Late-stage credit cycle dynamics emerging.\n  - Corporate bond spreads remain at low levels.\n  - Issuance of riskier bonds has surged; leveraged lending hit a record high in 2017.\n  - Faster-than-expected pickup in inflation could trigger rapid monetary withdrawal, sudden tightening in financial conditions, and sharp asset price declines, amplified by liquidity mismatches and increased leverage.\n- Borrowing by emerging markets and low-income countries:\n  - Debt sustainability in low-income countries has deteriorated.\n  - More complex creditor composition complicates future debt restructurings.\n  - International bond issuance by low-income/frontier markets rebounded strongly in the previous year and remained strong early in 2018 despite volatility.\n- Bank dollar liquidity mismatches:\n  - International US dollar balance sheets of non-US banks rely on short-term wholesale sources for about 70 percent of their funding.\n  - This structural dollar mismatch could expose banks to dollar funding problems in market strains.\n  - Overall bank resilience has improved since the global financial crisis, but dollar mismatch is a structural vulnerability."
    },
    {
      "heading": "Crypto assets and fintech observations",
      "content": "- Size and risk:\n  - Crypto assets’ size is currently around 3 percent of combined G4 central bank balance sheets.\n  - Current size implies little risk to financial stability, but risks could grow in the future.\n- Benefits and harms:\n  - Some underlying technologies could make financial market infrastructure (e.g., payment systems) more efficient.\n  - Sector has been afflicted by fraud, security breaches, and operational failures.\n- Regulatory approach:\n  - Jurisdictions are largely applying existing regulations (e.g., consumer/investor protection and securities laws) to crypto activities.\n  - Cross-border cooperation and coordination are important because investments and fintech business models are global.\n  - Remain vigilant due to rapid innovation and potential growth in systemic importance.\n- Market activity:\n  - Over a thousand initial coin offerings occurred over the past two years."
    },
    {
      "heading": "Policy recommendations and priorities",
      "content": "- Monetary policy:\n  - Central banks should continue to normalize monetary policy gradually and communicate decisions clearly.\n  - Be attentive to shocks that could increase inflation uncertainty and raise long-term interest rates.\n- Prudential and regulatory policy:\n  - Regulators should deploy and develop prudential tools to address financial vulnerabilities.\n  - Policymakers should ensure implementation of the post-crisis regulatory reform agenda and resist rollbacks of overall capital, liquidity, or resolution frameworks.\n  - Tweaks to regulations can be considered at the margin through international coordination (e.g., FSB) to preserve level playing field and avoid arbitrage.\n- Emerging and low-income countries:\n  - Strengthen debt management, close data gaps, and use the new debt sustainability framework for low-income countries to identify debt-related vulnerabilities.\n  - Technical assistance to improve public-debt monitoring and fiscal policy design, including fiscal multiplier assessment, is ongoing."
    },
    {
      "heading": "Country- and region-specific points raised",
      "content": "- Europe and nonperforming loans:\n  - Some progress in reducing nonperforming loans as recovery strengthens, but levels remain high in some countries and more progress is needed.\n  - Comprehensive strategies needed: national authorities’ action, ECB guidance, judicial reforms to expedite resolution, and development of secondary markets for distressed assets.\n  - Reference to a chart indicating \"900 billion\" (as recalled during Q&A) related to nonperforming loans.\n- China deleveraging and financial stability:\n  - Chinese regulators have tightened the regulatory environment and made financial stability a top priority.\n  - Debt growth has slowed but overall debt remains fairly elevated; further regulatory tightening and careful sequencing of reforms are encouraged.\n  - Shadow banking remains prevalent in China; interconnectedness, opacity, and complexity warrant continued attention.\n- Low-income countries and Africa:\n  - Median public debt-to-GDP ratio in low-income countries rose by over 13 percentage points to about 47 percent of GDP.\n  - Over 40 percent now of low-income countries are at high risk of distress, up from about 20 percent in 2013.\n  - Rapid accumulation of public debt, deterioration in underwriting standards for foreign debt, and complex creditor structures are key concerns.\n- Correspondent banking and AML/CFT:\n  - Withdrawal of correspondent banking has slowed; in some jurisdictions the number of correspondent banks has increased following work on AML/CFT shortcomings.\n- Brexit and clearing:\n  - Central issue: potential shifts in euro clearing from London and implications for supervision, regulation, and safety.\n  - Emphasized need for high cooperation between UK and European regulatory authorities to manage financial stability risks.\n- Nigeria and other country questions:\n  - Report does not detail specific country analyses in this briefing; regional briefings cover more specifics (e.g., Sub-Saharan Africa)."
    },
    {
      "heading": "Scenarios, risks, and market dynamics",
      "content": "- Short-term (one-year horizon):\n  - Financial stability risks have increased but remain fairly low.\n- Medium-term (three-year horizon):\n  - Financial stability risks are elevated due to buildup of vulnerabilities under easy financial conditions.\n  - Under a severely adverse scenario, global growth could be negative three years from now.\n  - Exposure varies by country depending on debt accumulation, currency mismatches, and liquidity transformation vulnerabilities.\n- Inflation risk:\n  - Current inflation uncertainty is very low; analysts expect inflation to be low going forward in many jurisdictions.\n  - Report flags possibility of shocks that increase inflation uncertainty; historically, this is associated with rises in long-term interest rates and potential sharp tightening of financial conditions.\n- Market correlations and spillovers:\n  - Correlation of yields across major advanced countries has increased, raising the potential for spillovers from faster-than-expected monetary normalization."
    },
    {
      "heading": "Key statistics and figures (as stated)",
      "content": "- Non-US banks’ short-term wholesale funding share of international US dollar balance sheets: about 70 percent.\n- Crypto assets size: around 3 percent of combined G4 central bank balance sheets.\n- Leveraged lending: hit a record high in 2017.\n- Nonperforming loans (European reference in Q&A): recalled figure \"900 billion.\"\n- Initial coin offerings: over a thousand in the past two years.\n- Median public debt-to-GDP in low-income countries: rose by over 13 percentage points to about 47 percent of GDP.\n- Share of low-income countries at high risk of distress: over 40 percent, up from about 20 percent in 2013.\n\nTranscript of Global Financial Stability Report Press Briefing, Washington, D.C., April 18, 2018 — IMF Communications Department\n\n---\n\n\n References\n\n- People's Republic of China and the IMF\n- Brazil and the IMF\n- Nigeria and the IMF\n- The IMF and Good Governance -- A Factsheet\n- Transcripts\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2018/04/18/sm18-tr041818-transcript-of-global-financial-stability-report-press-briefing"
    }
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    "Published: April 18, 2018",
    "Date and place: Washington, D.C., April 18, 2018.",
    "Participants: Tobias Adrian; Anna Ilyina; Fabio Natalucci; J. Benson Durham; Randa Elnagar.",
    "High-level assessment:",
    "Stretched valuations across many asset classes:",
    "Borrowing by emerging markets and low-income countries:",
    "Bank dollar liquidity mismatches:",
    "Size and risk:",
    "Benefits and harms:",
    "Regulatory approach:",
    "Market activity:",
    "Monetary policy:",
    "Prudential and regulatory policy:",
    "Emerging and low-income countries:",
    "Europe and nonperforming loans:",
    "China deleveraging and financial stability:",
    "Low-income countries and Africa:",
    "Correspondent banking and AML/CFT:",
    "Brexit and clearing:",
    "Nigeria and other country questions:",
    "Short-term (one-year horizon):",
    "Medium-term (three-year horizon):",
    "Inflation risk:",
    "Market correlations and spillovers:",
    "Non-US banks’ short-term wholesale funding share of international US dollar balance sheets: about 70 percent.",
    "Crypto assets size: around 3 percent of combined G4 central bank balance sheets.",
    "Leveraged lending: hit a record high in 2017.",
    "Nonperforming loans (European reference in Q&A): recalled figure \"900 billion.\"",
    "Initial coin offerings: over a thousand in the past two years.",
    "Median public debt-to-GDP in low-income countries: rose by over 13 percentage points to about 47 percent of GDP.",
    "Share of low-income countries at high risk of distress: over 40 percent, up from about 20 percent in 2013.",
    "[People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)",
    "[Brazil and the IMF](http://www.imf.org/external/country/BRA/index.htm)",
    "[Nigeria and the IMF](http://www.imf.org/external/country/NGA/index.htm)",
    "[The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)",
    "[Transcripts](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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