The Last Mile: Financial Vulnerabilities and Risks
Global Financial Stability Report, April 2024
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- The Last Mile: Financial Vulnerabilities and Risks
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Bibliographic details
- Published: April 16, 2024
Overview
- Near-term risks to global financial stability have receded as disinflation is entering its last mile, but medium-term vulnerabilities are mounting.
- The report contains three chapters:
- Chapter 1: Financial Fragilities along the Last Mile of Disinflation
- Chapter 2: The Rise and Risks of Private Credit
- Chapter 3: Cyber Risk: A Growing Concern for Macrofinancial Stability
Chapter 1 — Financial Fragilities along the Last Mile of Disinflation
- Expectations that global disinflation is entering its “last mile” and monetary policy will be easing have eased financial conditions worldwide since the October 2023 Global Financial Stability Report.
- Emerging markets have shown resilience, and some frontier economies have issued international debt.
- The global economy appears increasingly likely to achieve a soft landing, and cracks in the financial system exposed by high interest rates have not ruptured further.
- Near-term global financial stability risks have receded.
- Salient risks along the last mile include:
- Growing strains in the commercial real estate sector.
- Signs of credit deterioration among corporates that could be exacerbated by adverse shocks.
- The risk that stalling disinflation could surprise investors, leading to a repricing of assets and a resurgence of financial market volatility.
- A continued accumulation of debt in both public and private sectors as a notable medium-term vulnerability.
Chapter 2 — The Rise and Risks of Private Credit
- Private credit is a rapidly growing asset class—traditionally focused on providing loans to mid-sized firms outside the realms of either commercial banks or public debt markets—that now rivals other major credit markets in size.
- Important vulnerabilities identified:
- Relatively fragile borrowers.
- A growing share of semi-liquid investment vehicles.
- Multiple layers of leverage.
- Stale and potentially subjective valuations.
- Unclear connections between participants.
- Risk assessment:
- If private credit remains opaque and continues to grow exponentially under limited prudential oversight, these vulnerabilities could become systemic.
- Policy recommendations and supervisory considerations:
- Authorities could consider a more proactive supervisory and regulatory approach to private credit.
- Close data gaps and enhance reporting requirements to comprehensively assess risks.
- Closely monitor and address liquidity and conduct risks in funds—especially retail—that may be faced with higher redemption risks.
Chapter 3 — Cyber Risk: A Growing Concern for Macrofinancial Stability
- Against a backdrop of growing digitalization, evolving technologies, and rising geopolitical tensions, cyber risks are on the rise.
- While cyber incidents have thus far not been systemic, the risk of extreme losses from such incidents has increased.
- The financial sector is highly exposed; a severe cyber incident could pose macro-financial stability risks through:
- A loss of confidence.
- Disruption of critical services.
- Spillovers to other institutions through technological and financial linkages.
- Current gaps and needs:
- Cyber policy frameworks remain generally inadequate, especially in emerging market and developing economies.
- Reporting of cyber incidents should be strengthened to allow for more effective monitoring of cyber risks.
- Recommended measures to strengthen cyber resilience:
- Develop adequate national cybersecurity strategies.
- Establish appropriate regulatory and supervisory frameworks.
- Build a capable cybersecurity workforce.
- Create domestic and international information-sharing arrangements.
- Supervisors should hold board members responsible for managing the cybersecurity of financial firms and promoting a conducive risk culture, cyber hygiene, and cyber training and awareness.
- Financial firms should develop and test response and recovery procedures.
- National authorities should develop effective response protocols and crisis management frameworks.
Media and Outreach
- IMF Financial Counsellor Tobias Adrian on the April 2024 Global Financial Stability Report — May 2, 2024 — 3:42
- Press Briefing: Global Financial Stability Report, April 2024 — April 16, 2024 — 52:17
- The Rise and Risks of Private Credit — April 10, 2024 — 50:52
- Cyber Risk: A Growing Concern for Macrofinancial Stability — April 9, 2024 — 57:53
Source: Global Financial Stability Report — The Last Mile: Financial Vulnerabilities and Risks (April 2024).
Content in this bundle
- Chapter 1 Data
- Dataset overview
- Chapter 3 Data
- Chapter 1
- Chapter 2
- Global Financial Stability Report, April 2024, “The Rise and Risks of Private Credit"
- ch3
- Chapter 3 Online Annex
- Cyber Risk: A Growing Concern for Macrofinancial Stability
- Executive Summary
- Foreword
- Global Financial Stability Report — Key Highlights 2024 Apr
- Full Report
References
- Previous Issues
- Blog by IMF Financial Counsellor Tobias Adrian
- Podcast
- Press Conference
- https://origin-blogs.imf.org/en/blogs/articles/2024/04/08/fast-growing-usd2-trillion-private-credit-market-warrants-closer-watch
- Replay the Event
- https://origin-blogs.imf.org/en/blogs/articles/2024/04/09/rising-cyber-threats-pose-serious-concerns-for-financial-stability
- Replay the Event