A must-have, the Global Financial Stability Report (GFSR) seeks to identify potential fault lines in the global financial system that could lead to crisis, while providing comprehensive coverage of mature and emerging financial markets.

The GFSR focuses on current conditions in global financial markets, highlighting issues both of financial imbalances and of a structural nature that could pose isks to financial market stability and market access by emerging market borrowers. It regularly offers articles on structural or systemic issues relevant to international financial stability.

Note: Designed to deepen understanding of global capital fl ows which play a critical role as an engine of world economic growth, the GFSR replaces the annual International Capital Markets, published ince 1980, and the electronic quarterly, Emerging Markets Financing, published since 2000.

EXECUTIVE SUMMARY

While events are still unfolding, the April 2008 Global Financial Stability Report (GFSR) assesses the vulnerabilities that the system is facing and offers tentative conclusions and policy lessons. Some key themes that emerge from this
analysis include:

• There was a collective failure to appreciate the extent of leverage taken on by a wide range of institutions—banks, monoline insurers, government-sponsored entities, hedge funds—and the associated risks of a disorderly unwinding.

• Private sector risk management, disclosure, financial sector supervision, and regulation all lagged behind the rapid innovation and shifts in business models, leaving scope for excessive risk-taking, weak underwriting, maturity mismatches, and asset price inflation.

• The transfer of risks off bank balance sheets was overestimated. As risks have materialized, this has placed enormous pressures back on the balance sheets of banks.

• Notwithstanding unprecedented intervention by major central banks, financial markets remain under considerable strain, now compounded by a more worrisome macroeconomic environment, weakly capitalized institutions, and broad-based deleveraging.

In sum, the global financial system has undoubtedly come under increasing strains since the October 2007 GFSR, and risks to financial stability remain elevated. The systemic concerns are exacerbated by a deterioration of credit quality, a drop in valuations of structured credit products, and a lack of market liquidity accompanying a broad deleveraging in the fi nancial system.

The critical challenge now facing policymakers is to take immediate steps to mitigate the risks of an even more wrenching adjustment, including by preparing contingency and other remediation plans, while also addressing the seeds of the present turmoil.

Download Global Financial Stability Report 2008, IMF

PDF format, 5.15MB, 211Pages.

Global Financial Stability Report, April 2008
Containing Systemic Risks and Restoring Financial Soundness
© 2008 International Monetary Fund

Production: IMF Multimedia Services Division
Cover: Jorge Salazar
Figures: Theodore F. Peters, Jr., Jeffrey Rydberg, Andrew Sylvester Typesetting: Julio Prego

ISBN 978-1-58906-720-2
ISSN 0258-7440

CONTENTS:

Preface vii

Executive Summary ix

Chapter 1. Assessing Risks to Global Financial Stability 1
Global Financial Stability Map 1
Credit Deterioration—How Deep and Widespread? 4
Systemic Risks Have Risen Sharply 10
Will Emerging Markets Remain Resilient? 23
Credit Squeeze or Credit Crunch? 32
Immediate Policy Challenges 36
Annex 1.1. Global Financial Stability Map: Construction and Methodology 40
Annex 1.2. Methodology for Calculating Global Losses and Bank Exposures 46
References 53

Chapter 2. Structured Finance: Issues of Valuation and Disclosure 54
Valuation and Disclosure of Complex Structured Finance Products 55
The Role of Off-Balance-Sheet Entities 69
Conclusions and Outlook 80
Annex 2.1. The World According to GAAP 83
References 84

Chapter 3. Market and Funding Illiquidity: When Private Risk Becomes Public 86
The Nature of Market Liquidity Risks 87
Funding Liquidity Risks 87
Market and Funding Liquidity Dynamics 93
Liquidity Dynamics Since July 2007: An Empirical Investigation 95
The Role of Central Banks During Periods of Market and Funding Illiquidity 98
Central Banks’ Response to Liquidity Strains Since July 2007: An Empirical Investigation 102
Recommendations to Enhance Liquidity Risk Management 104
Conclusion 109
Annex 3.1. Liquidity Dynamics Since Summer 2007 109
References 115

Glossary 118

Visit Global Financial Stability Report's Web Site

Since the April 2007 Global Financial Stability Report (GFSR), global financial stability has endured an important test. Credit and market risks have risen and markets have become more volatile. Markets are recognizing the extent to which credit discipline has deteriorated in recent years — most notably in the U.S. nonprime mortgage and leveraged loan markets, but also in other related credit markets.

About The Global Financial Stability Report:

The Global Financial Stability Report replaces two IMF publications: the annual International Capital Markets Report (published since 1980) and the quarterly Emerging Market Financing (published since 2000). The report was created to provide a more frequent assessment of global financial markets and to address emerging market financing in a global context.

The report focuses on current conditions in global financial markets, highlighting issues of financial imbalances, and of a structural nature, that could pose a risk to financial market stability and sustained market access by emerging market borrowers. As a quarterly, it will focus on relevant contemporary issues and not try to be a comprehensive survey of all potential risks, and on drawing out the financial ramifications of economic imbalances highlighted by the IMF's World Economic Outlook. It will regularly contain, as a special feature, articles on structural or systemic issues relevant to international financial stability.

Comments (0)

Show/Hide comments

Name

Email

Website

Title

Comment

smaller | bigger

Add Comment