Global Financial Stability Report
Financial Market Turbulence:Causes, Consequences, and Policies
October 2007
©2007 International Monetary Fund
Ordering Information
The Global Financial Stability Report provides semiannual assessments of global financial markets and addresses emerging market financing in a global context.* |
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Contents
| Executive Summary(90KB pdf file) | ||
| Video summary of the Global Financial Stability Report by Mr. Jaime Caruana | ||
| Video Clips of the Global Financial Stability Report Press Briefing by Mr. Jaime Caruana | ||
| Chapter I. Assessing Risks To Global Financial Stability | ||
|---|---|---|
| Full Text (616KB pdf file) | Summary | ||
| Global Financial Stability Map | ||
| Credit Indiscipline in Mature Markets | ||
| Weaker Credit and Market Discipline Warrants Increased Surveillance in Emerging Markets | ||
| Investment Inflows into Emerging Markets—Do They Destabilize Local Markets? | ||
| Policy Challenges | ||
| Annex 1.1. The Global Financial Stability Map | ||
| Annex 1.2. Sovereign Wealth Funds | ||
| References | ||
| Chapter II. Do Market Risk Management Techniques Amplify Systemic Risks? | ||
| Full Text (336KB pdf file) | Summary | ||
| VaR and Other Risk Management Techniques | ||
| Assessing Amplification Effects in a Stylized Market Risk Management Framework | ||
| Developments in Market Risk Management Practices by Banks and Hedge Funds | ||
| Observations | ||
| Policy Implications | ||
| Conclusions | ||
| References | ||
| Chapter III. The Quality of Domestic Financial Markets and Capital Inflows | ||
| Full Text (308KB pdf file) | Summary | ||
| Does Domestic Financial Development Help Determine Capital Inflows? | ||
| Challenges Associated with Capital Inflows and Policy Responses: Case Studies | ||
| Key Results and Conclusions | ||
| Annex 3.1. Estimation Specification and Results | ||
| Annex 3.2. Experiences with Recent Capital Inflows: Brazil, India, Romania, South Africa, and Vietnam | ||
| Annex 3.3 Experiences with Recent Capital Inflows: Selected Countries | ||
| References | ||
| Glossary (107KB pdf file) | ||
| Annex: Summing Up by the Acting Chair | ||
| Statistical Appendix (1,321KB pdf file) | ||
| Boxes | ||
| 1.1 | Estimates of Nonprime Mortgage Losses | |
| 1.2 | Concerns in the Asset-Backed Commercial Paper Market | |
| 1.3 | Equity Inflows and Emerging Markets | |
| 1.4 | The Role of Hedge Funds in Emerging Asia | |
| 1.5 | Sovereign Wealth Funds: A Statistical Perspective | |
| 2.1 | Criticism of VaR-Based Risk Management Models and Alternatives | |
| 2.2 | The Basics for Constructing VaR Measures | |
| 2.3 | Risk Measurement and Disclosure Practices of Financial Institutions | |
| 2.4 | The Amaranth Hedge Fund Failure and Liquidity Risk | |
| 3.1 | Recent Developments with Capital Flows in Emerging Asia and Latin America | |
| 3.2 | Discussions with Investors into Emerging Markets: Do "Micro" Financial Factors Attract International Capital? | |
| 3.3 | How Investors Gain Exposure to an Emerging Market in the Presence of Capital Controls: The Case of India | |
| Tables | ||
| 1.1 | Weakening Discipline in Subprime is Mirrored in Leveraged Buyouts | |
| 1.2 | Private Equity Deal Scenarios | |
| 1.3 | Stylized Example of a Forced Unwind of Leverage | |
| 1.4 | Typical Haircut: Bond, Leveraged Loan, and ABS and CDOs | |
| 1.5 | Structure of External Financing and Banking System Soundness and Ownership | |
| 1.6 | Changes in Risks and Conditions Since the April 2007 Global Financial Stability Report | |
| 1.7 | Size and Structure of Major Sovereign Wealth Funds | |
| 2.1 | Selected Correlation Coefficients Between Asset Classes in the Interactive Model | |
| 3.1 | Panel Least-Squares Estimation of the Determinants of Total Capital Inflows | |
| 3.2 | Panel Generalized Method of Moments Estimation of the Determinants of the Standard Deviation of Total Capital Inflows, 1998-2006 | |
| 3.3 | Indicators for Selected Countries, 2001 and 2006 | |
| 3.4 | Descriptive Statistics for Variables Used in Panel Regressions, 1975-2006 | |
| 3.5 | Fixed-Effects Panel Least-Squares Estimation of the Determinants of Capital Inflows (All Countries, Full Sample) | |
| 3.6 | Fixed-Effects Panel Least-Squares Estimation of the Determinants of Capital Inflows (Emerging Market Economies, Full Sample) | |
| 3.7 | Fixed-Effects Panel Least-Squares Estimation of the Determinants of Capital Inflows (All Countries, 1998-2006) | |
| 3.8 | Fixed-Effects Panel Least-Squares Estimation of the Determinants of Capital Inflows (Emerging Market Economies, 1998-2006) | |
| Figures | ||
| 1.1 | Global Financial Stability Map | |
| 1.2 | Selected Asset Class Returns | |
| 1.3 | U.S. High-Yield Corporate Bonds Spreads Index | |
| 1.4 | Probability of Multiple Defaults in Select Scenarios | |
| 1.5 | Gross Debt Issuance by Sector | |
| 1.6 | Nonprime 60-Day Delinquencies by Mortgage Vintage Year | |
| 1.7 | Monthly Mortgage Rate Resets | |
| 1.8 | Rising Number of Downgrades of Mortgage-Related Products | |
| 1.9 | Representative Spreads of Mortgage-Backed ABS and CDOs | |
| 1.10 | Mortgage Market Flows and Risk Exposure | |
| 1.11 | Buyers of ABS CDOs | |
| 1.12 | U.S. CDO Outstanding Volume | |
| 1.13 | Number of Covenant-Lite Loans to Total Number of Institutional Term Loans | |
| 1.14 | Major Bank Exposures to Leveraged Buyout Pipeline | |
| 1.15 | Interest Coverage Statistics on Private Equity | |
| 1.16 | U.S. Money Market Interest Rates | |
| 1.17 | Emerging Market Private Loan Placements | |
| 1.18 | Growth in External Funding of Banks and Private Sector Credit in 2006 | |
| 1.19 | Correlation of Credit Growth with Growth in Foreign Financing of Banks, 2004-06 | |
| 1.20 | Emerging Asia: Short-Term Foreign-Currency-Denominated Borrowing | |
| 1.21 | Korea: Foreign-Currency-Denominated Loans of Commercial, Special, and Foreign Banks | |
| 1.22 | Price/Earnings Ratios | |
| 1.23 | Correlation of Emerging and Mature Market Equities | |
| 1.24 | Net Flows in Emerging Market Equities, May-June 2006 | |
| 1.25 | Emerging Market Hedge Fund Allocations | |
| 1.26 | Global Financial Stability Map: Monetary and Financial Conditions | |
| 1.27 | Global Financial Stability Map: Risk Appetite | |
| 1.28 | Global Financial Stability Map: Macroeconomic Risks | |
| 1.29 | Global Financial Stability Map: Emerging Market Risks | |
| 1.30 | Global Financial Stability Map: Credit Risks | |
| 1.31 | Global Financial Stability Map: Market and Liquidity Risks | |
| 2.1 | Implied Volatility Indices | |
| 2.2 | Backtesting Results: Broad Portfolio, October 1997 to October 1998 | |
| 2.3 | Backtesting Results: Broad Portfolio, June 2006 to June 2007 | |
| 2.4 | VaR in an Era of Declining Volatilities | |
| 2.5 | VaR Measures: Historical Simulation versus EWMA | |
| 2.6 | Asian Crisis: Stressed VaR Estimates at the 99 Percent Confidence Level | |
| 2.7 | August 1998: VaR Estimates at the 99 Percent Confidence Level | |
| 2.8 | Long-Term Capital Management Scenario: EWMA versus Historical Simulation, March 2007 | |
| 2.9 | Asset Price Dynamics Under Alternative Model Specifications | |
| 2.10 | Selected Asset Volatilities Under the Interactive Model | |
| 3.1 | Total Capital Inflows | |
| 3.2 | Composition of Capital Inflows | |
| 3.3 | Market Infrastructure and Volatility of Total Capital Inflows | |
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