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

Global Financial Stability Report, April 2022

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

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Bibliographic details

• Published: April 19, 2022

Major findings and context

• "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."
• "Bank holdings of domestic sovereign bonds have surged in emerging markets during the pandemic."
• "Fintech firms have rapidly grown into risky business segments, with inadequate regulation and interconnectedness with the traditional financial system."

Chapter 1 — The Financial Stability Implications of the War in Ukraine

• Reiterated finding: "Financial conditions have tightened and risks to the global economy have increased as a result of the war in Ukraine."
• Key stresses and trade-offs:
  • "Soaring commodity prices pose challenging trade-offs for central banks."
  • "Central banks should act decisively to prevent inflation from becoming entrenched without jeopardizing the recovery."
  • "Policymakers will need to confront the structural issues brought to the fore by the war, including the trade-off between energy security and climate transition."
• Specific country pressures:
  • "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."

Chapter 2 — The Sovereign-Bank Nexus in Emerging Markets: A Risky Embrace

• Observations:
  • "The COVID-19 pandemic has brought the relationship between sovereigns and banks—the so-called sovereign-bank nexus—in emerging market economies to the fore as bank holdings of domestic sovereign debt have surged."
  • "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."
• Empirical conclusions:
  • "An increase in sovereign credit risk can adversely affect banks’ balance sheets and credit supply, especially in countries with less-well-capitalized banking systems."
  • "Sovereign distress can also constrain funding for the nonfinancial corporate sector and reduce its capital expenditure."
• Policy implication:
  • "As global financial conditions tighten and geopolitical tensions intensify, a deeper nexus makes policy trade-offs in emerging markets more complex. Potential policy responses are discussed."

Chapter 3 — The Rapid Growth of Fintech: Vulnerabilities and Challenges for Financial Stability

• Summary of risks:
  • "Fintech can increase efficiency and competition and broaden access to financial services."
  • "However, the fast growth of fintech firms into risky business segments—and their inadequate regulation and interconnectedness with the traditional financial system—can have financial stability implications."
• Focus areas examined:
  • "Digital banks ('neobanks'), long-established fintech firms in the US mortgage market, and decentralized finance ('DeFi')."
• Policy recommendations:
  • "The chapter argues that policies targeting fintech and traditional financial firms proportionately are needed."
  • "In the case of DeFi, regulations should focus on the elements of the crypto ecosystem that enable it, such as stablecoin issuers and centralized exchanges."

Policy recommendations and priorities

• Central banks:
  • "Act decisively to prevent inflation from becoming entrenched without jeopardizing the recovery."
• Policymakers:
  • "Intensify their efforts to implement the 2021 United Nations Climate Change Conference (COP26) road map while taking appropriate steps to address energy security concerns."
• Regulatory approach to fintech:
  • "Policies targeting fintech and traditional financial firms proportionately are needed."
  • For DeFi: "Regulations should focus on the elements of the crypto ecosystem that enable it, such as stablecoin issuers and centralized exchanges."

Global Financial Stability Report 4/19/2022 — Shockwaves from the War in Ukraine Test the Financial System’s Resilience

Content in this bundle

• Chapter 1 Data
  • Chapter 1 Data (Markdown version)
  • Chapter 1 Data (XLSX)
• Chapter 2 Data
  • Chapter 2 Data (Markdown version)
  • Chapter 2 Data (XLSX)
• Chapter 3 Data
  • Chapter 3 Data (Markdown version)
  • Chapter 3 Data (XLSX)
• CHAPTER 1 ThE FINANCIAL STABILITY IMPLICATIONS OF ThE wAR IN UkRAINE
  • CHAPTER 1 ThE FINANCIAL STABILITY IMPLICATIONS OF ThE wAR IN UkRAINE (Markdown version)
  • CHAPTER 1 ThE FINANCIAL STABILITY IMPLICATIONS OF ThE wAR IN UkRAINE (PDF)
• Microsoft Word - GFSR_April2022_Ch1_OnlineBox.docx
  • Microsoft Word - GFSR_April2022_Ch1_OnlineBox.docx (Markdown version)
  • Microsoft Word - GFSR_April2022_Ch1_OnlineBox.docx (PDF)
• Chapter 2
  • Chapter 2 (Markdown version)
  • Chapter 2 (PDF)
• Chapter 2 Online Annex
  • Chapter 2 Online Annex (Markdown version)
  • Chapter 2 Online Annex (PDF)
• CHAPTER 3 — THE RAPID GROWTH OF FINTECH: VULNERABILITIES AND CHALLENGES FOR FINANCIAL STABILITY
  • CHAPTER 3 — THE RAPID GROWTH OF FINTECH: VULNERABILITIES AND CHALLENGES FOR FINANCIAL STABILITY (Markdown version)
  • CHAPTER 3 — THE RAPID GROWTH OF FINTECH: VULNERABILITIES AND CHALLENGES FOR FINANCIAL STABILITY (PDF)
• Chapter 3 Online Annex
  • Chapter 3 Online Annex (Markdown version)
  • Chapter 3 Online Annex (PDF)
• Executive Summary
  • Executive Summary (Markdown version)
  • Executive Summary (PDF)
• Foreword
  • Foreword (Markdown version)
  • Foreword (PDF)
• Global Financial Stability Report, April 2022 - Implications of teh War in Ukraine; April 19, 2022
  • Global Financial Stability Report, April 2022 - Implications of teh War in Ukraine; April 19, 2022 (Markdown version)
  • Global Financial Stability Report, April 2022 - Implications of teh War in Ukraine; April 19, 2022 (PDF)
• Full Report
  • Full Report (Markdown version)
  • Full Report (PDF)

References

• Blog by IMF Staff
• https://blogs.imf.org/2022/04/18/emerging-market-banks-government-debt-holdings-pose-financial-stability-risks/
• watch the video
• blog by imf staff