Global Financial Stability Report, April 2022: Shockwaves from the War in Ukraine Test the Financial System’s Resilience

Global Financial Stability Report, April 19, 2022

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Bibliographic details

Published: April 19, 2022
Series: Global Financial Stability Report
DOI: https://doi.org/10.5089/9798400205293.082

Executive summary and key findings

Financial conditions have tightened and risks to the global economy have increased as a result of the war in Ukraine.
Soaring commodity prices pose challenging trade-offs for central banks.
Many emerging and frontier markets are facing especially difficult conditions.
In China, financial vulnerabilities remain elevated amid ongoing stress in the property sector and new COVID-19 outbreaks.
Central banks should act decisively to prevent inflation from becoming entrenched without jeopardizing the recovery.
Policymakers will need to confront structural issues brought to the fore by the war, including the trade-off between energy security and climate transition.

Chapter highlights

Chapter 1: Implications of the war in Ukraine on the financial system; commodity price effects on monetary policy trade-offs; elevated vulnerabilities in emerging and frontier markets; China’s property sector stress and COVID-19 outbreaks.
Chapter 2: The sovereign-bank nexus in emerging markets. Bank holdings of domestic sovereign bonds have surged in emerging markets during the pandemic. With public debt at historically high levels and the sovereign credit outlook deteriorating, there is a risk of a negative feedback loop that could threaten macro-financial stability.
Chapter 3: Challenges to financial stability posed by the rapid rise of risky business segments in fintech. Policies that target both fintech firms and incumbent banks proportionately are needed.

Policy recommendations and priorities

Central banks:
- Act decisively to prevent inflation from becoming entrenched without jeopardizing the recovery.
Policymakers:
- Intensify efforts to implement the 2021 United Nations Climate Change Conference (COP26) road map while taking appropriate steps to address energy security concerns.
Financial sector regulation:
- Implement proportionate policies that target both fintech firms and incumbent banks to address risks from rapidly growing risky fintech business segments.
Sovereign-bank nexus:
- Monitor bank holdings of domestic sovereign bonds and manage risks associated with historically high public debt and a deteriorating sovereign credit outlook to avoid negative feedback loops threatening macro-financial stability.

Subjects and keywords (as provided)

Subjects: Asset and liability management, Blockchain and DLT, Central banks, Emerging and frontier financial markets, Financial markets, Fintech, Public debt, Technology, Virtual currencies
Keywords: Blockchain and DLT, Caribbean, Central and Eastern Europe, debt, Eastern Europe, Emerging and frontier financial markets, Europe, financial stability, fintech, Fintech, Global, hard currency yield, inflation, inflation pressure, monetary policy stance, policy priority, risks of fragmentation, sovereign-bank nexus, trade market, Virtual currencies, war in Ukraine

References

https://www.imf.org/en/publications/gfsr
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