IMF Global Financial Stability Report (GFSR) -- April 2013 -- Table of Contents

World Economic and Financial Surveys

Global Financial Stability Report

Old Risks, New Challenges

April 2013

The April 2013: The Global Financial Stability Report examines current risks facing the global financial system and policy actions that may mitigate these. The April 2013 report analyzes the key challenges facing financial and nonfinancial firms as they continue to repair their balance sheets and unwind public and private debt overhangs. Chapter 1 also examines short- and medium-term stability risks in the euro area and the vulnerability of emerging market economies to persistent capital inflows. Chapter 2 takes a closer look at whether sovereign credit default swaps markets are good indicators of sovereign credit risk. Chapter 3 reports on unconventional monetary policy in some depth, including the policies pursued by the Federal Reserve, the Bank of England, the Bank of Japan, the European Central Bank, and the U.S. Federal Reserve.

Front Matter

Executive Summary
Preface

Chapter 1. Acute Risks Reduced: Actions Needed to Entrench Financial Stability

This chapter examines current risks facing the global financial system and policy actions that may mitigate these. Risks to financial stability have declined since the October 2012 report, reflecting deeper policy commitments, renewed monetary stimulus, and continued liquidity support. This April 2013 report analyzes the key challenges facing financial and nonfinancial firms as they continue to repair their balance sheets and unwind debt overhangs, and examines the work that lies ahead to address structural challenges in the euro area. The report also looks at the potential risk to financial stability of persistent or accelerating capital flows to emerging market economies.

Full Text

Boxes
		1.1	What Has China’s Lending Boom Done to Corporate Leverage?
Tables
	Data	1.1	Selected Euro Area Countries: Vulnerability Indicators in the Corporate Sector
	Data	1.2	Deleveraging Progress, 2011:Q3–2012:Q3
	Data	1.3	U.S. Nonfinancial Corporate Bonds: Yields, Spreads, and Valuations
	Data	1.4	Scenarios for U.S. Treasury Bond Market Corrections
	Data	1.5	Distribution of Bank Lending and Nonperforming Loans
		1.6	Credit and Asset Market Indicators for Selected Emerging Markets and Other Countries
		1.7	Comparing Proposals for Structural Reform
	Data	1.8	Nonfinancial Corporate Debt and Leverage
	Data	1.9	Nonfinancial Corporate Database Coverage
	Data	1.10	Corporate Sectoral Breakdown within the Sample
		1.11	Progress on Deleveraging/Restructuring Plans of Selected Major European Banks, as of January 2013
Figures
	Data	1.1	Global Financial Stability Map
	Data	1.2	Global Financial Stability Map: Assessment of Risks and Conditions
	Data	1.3	Asset Price Performance since October 2012 GFSR
	Data	1.4	Global Equity Valuations
	Data	1.5	Global Equity Valuations, by Country
	Data	1.6	Property Price Valuations
	Data	1.7	Hard-Currency Debt Valuations in Emerging Market Economies
	Data	1.8	U.S. Sovereign Debt Valuations
	Data	1.9	Target Balances and Sovereign Bond Yields
	Data	1.10	Periphery Euro Area Banks’ Bond Issuance and CDS Spreads
	Data	1.11	Italy and Spain: Nonfinancial Firms’ Change in Bank Credit and Net Bond Issuance
	Data	1.12	Foreign Investor Share of General Government Debt
	Data	1.13	European Sovereign Bond Spreads, Current and Implied by Forward Curve
	Data	1.14	Asset Performance, March 15–April 2, 2013
	Data	1.15	Proportion of System Balance Sheets Encumbered
	Data	1.16	Periphery Banks’ Covered Bond Issuance and Spreads
	Data	1.17	Selected EU Banks’ Foreign Claims on Banking Sectors, June 2011–September 2012
	Data	1.18	Changes in Interest Rates on New Bank Loans, December 2010–January 2013
	Data	1.19	Corporate Real Interest Rates and GDP Growth, February 2013
	Data	1.20	Bank Lending to the Nonfinancial Private Sector
	Data	1.21	Euro Area Periphery Bank Credit
		1.22	Interaction between Credit Demand and Supply
		1.23	Interest Rate on New Lending and Decomposition of New Bank Funding Rate
	Data	1.24	Euro Area Bank Lending Conditions for Firms
	Data	1.25	Met and Unmet Demand for Bank Credit for Small and Medium-Sized Enterprises
		1.26	Spread of Interest Rates on New Loans to SMEs over ECB Policy Rate
	Data	1.27A	Corporate Debt
	Data	1.27B	Corporate Debt in Percent of GDP
	Data	1.28	Share of Firms with High Leverage and Low Interest Coverage Ratio, 2011
	Data	1.29	Share of Firms with High Leverage and Negative Net Free Cash Flow
	Data	1.30	Required Reduction in Leverage under Different Scenarios
	Data	1.31	Required Cuts in Capital Expenditures to Stabilize Debt of Euro Area Periphery Firms with High Leverage and Negative Net Free Cash Flow
	Data	1.32	Bank Core Tier 1 and Wholesale Funding Ratios, 2008:Q4 to 2012:Q3
	Data	1.33	Bank Leverage and Wholesale Funding Ratios, 2008:Q4 to 2012:Q3
	Data	1.34	Ranking of Banking Systems Based on Banks’ Balance Sheet Indicators, 2012:Q3
	Data	1.35	Average Net Interest Margins
	Data	1.36	Impaired Loans in Selected EU Countries
	Data	1.37	EU Banks’ Asset Quality and Profitability
	Data	1.38	Buffers at Individual EU Banks
	Data	1.39	Bank Risk-Weights and Impairments, Average for 2008–11
	Data	1.40	Deposit Funding Gaps of Foreign Subsidiaries of Large EU Banks
	Data	1.41	Average Return on Equity, and Cost of Equity
	Data	1.42	Ratio of Equity Price to Tangible Book Value, April 2013
	Data	1.43	GFSR EU Bank Deleveraging Scenarios
	Data	1.44	Large EU Banks: Contributions to Change in Balance Sheets 2011:Q3–2012:Q3
	Data	1.45	Banks’ Foreign Claims on All Regions
	Data	1.46	Net Foreign Assets Position
	Data	1.47	Global Mutual Fund and Exchange-Traded Fund Flows
	Data	1.48	Net Issues of Fixed-Income Securities
	Data	1.49	U.S. Fixed Investment Spending versus Internal Cash Flow
	Data	1.50	U.S. Nonfinancial Corporate Bond Issuance and Equity Buybacks
	Data	1.51	U.S. Nonfinancial Firms’ Credit Fundamentals
	Data	1.52	U.S. Primary Dealer Repo Financing
	Data	1.53	Global Issuance of Leveraged Loans and Collateralized Debt Obligations
	Data	1.54	Risk Tolerance for Weakest 10 Percent of U.S. Public Pension Funds
	Data	1.55	Net Interest Margins and Investment in Risky Assets by U.S. Insurance Companies
	Data	1.56	U.S. Treasury Sell-Off Episodes
	Data	1.57	U.S. High-Yield Corporate Spread and Liquidity and Volatility
	Data	1.58	Holdings of U.S. Corporate Bonds, by Investor Type
	Data	1.59	Net Capital Flows to Emerging Markets
	Data	1.60	Selected Emerging Market Bond, Equity, and Loan Issuance
	Data	1.61	Nonresident Holdings of Domestic Sovereign Debt
	Data	1.62	Emerging Market Nonfinancial Corporate Issuance
	Data	1.63	Emerging Market Nonfinancial Corporate Leverage, 2007 and 2012
	Data	1.64	Foreign-Exchange-Denominated Debt of Nonfinancial Corporations in Emerging Markets
	Data	1.65	Emerging Market Corporate Issuance, by Type of Issuer
	Data	1.66	Corporate Leverage in Asia, excluding Japan
	Data	1.67	Interest Coverage Ratio for Emerging Market Firms
	Data	1.68	Hard Currency and Local Currency Sovereign Bond Issuance
	Data	1.69	EMBI Global Spread Tightening (December 2008–12): Decomposition
	Data	1.70	Local Yield Tightening in Emerging Market Economies (December 2008–12): Decomposition
	Data	1.71	Impact of Shocks on EMBI Global Spreads
	Data	1.72	Impact of Shocks on Local Emerging Market Yields
	Data	1.73	Domestic Credit Growth, 2006–12
	Data	1.74	Consumer Price Index-Adjusted Residential Property Prices, 2006–12
	Data	1.75	Gross Nonperforming Loan Ratios, 2010–12
	Data	1.76	Banks’ Loss-Absorbing Buffers by Region
	Data	1.77	China: Growth Rate of Credit, by Type
	Data	1.78	European Investment-Grade Corporate Fundamentals
	Data	1.79	Developments in Publicly Listed European Companies
		1.80	Progress in Deleveraging Plans across Sample Banks, 2012

Chapter 2. A New Look at the Role of Sovereign Credit Default Swaps

Examines whether sovereign credit default swaps (SCDS) are good market indicators of sovereign credit risk, and finds that many of the negative perceptions surrounding their impact on financial stability are unfounded: SCDS markets do not appear to be more prone to high volatility than other financial markets. The results of the analysis do not support the need for a ban on “naked” SCDS protection buying, which went into effect in the European Union in November 2012.

Full Text | Survey Article

Boxes
		2.1	Interconnectedness between Sovereigns and Financial Institutions
		2.2	The European Union’s Ban on Buying Naked Sovereign Credit Default Swap Protection
		2.3	What Could be the Impact of the Demise of SCDS?
		2.4	The Greece Debt Exchange and Its Implications for the SCDS Market
Tables
		2.1	Rankings of CDS Amounts Outstanding
		2.2	Lead-Leg Relationship between Sovereign Credit Default Swaps and Bond Residuals
		2.3	List of Countries Included in Empirical Studies
		2.4	List of Variables Used in Regression Analysis
		2.5	Summary of Estimation of Monthly Drivers for Sovereign Credit Default Swap (SCDS) Spreads and Bond Spreads, October 2008–September 2012
		2.6	Summary of Estimation Results on Drivers for Basis, October 2008–September 2012
Figures
	Data	2.1	Credit Default Swap (CDS) Contracts, Gross Notional Amounts Outstanding
	Data	2.2	Nondealer Buyers and Sellers of Credit Default Swap Protection: Net Positions by Counterparty
		2.3	Liquidity Indicators in the Sovereign Credit Default Swaps (SCDS) Market
		2.4	Volatility of Sovereign Credit Default Swap (SCDS) Spreads and Sovereign Bond Spreads
		2.5	Determinants of Sovereign Credit Default Swap (SCDS) Spreads and Bond Spreads, October 2008–September 2012
		2.6	Sovereign Credit Default Swap (SCDS) Price Leadership and Liquidity, March 2009–September 2012
		2.7	Time-Varying Price Leadership Measures of Sovereign Credit Default Swaps (SCDS)
	Data	2.8	Sovereign Credit Default Swaps (SCDS): Decomposition of Volatility Factors for Germany, Italy, and Spain, February 2009–October 2012
		2.9	Markov-Switching ARCH Model of VIX, European TED Spread, and Sovereign Credit Default Swap (SCDS) Indices
		2.10	Overshooting and Undershooting of Sovereign Credit Default Swaps (SCDS) and Sovereign Bond Markets
	Data	2.11	Sovereign Credit Default Swaps: Net Notional Amounts Outstanding, Selected EU Countries
		2.12	Market Liquidity Measures before and after Ban on Short Sales of Sovereign Credit Default Swaps (SCDS)
		2.13	Constructing the Arbitrage Trade between Credit Default Swaps (CDS) and Bonds
		2.14	Difference between Sovereign Credit Default Swap Spreads and Sovereign Bond Spreads, Selected Countries

Chapter 3. Do Central Bank Policies Since the Crisis Carry Risks to Financial Stability?

Investigates the monetary policies pursued by four central banks (the Federal Reserve, Bank of England, European Central Bank, and Bank of Japan), including prolonged periods of low real policy interest rates and unconventional measures, including asset purchases. The policies appear to have lessened banking sector vulnerabilities and contributed to financial stability in the short term. However, policymakers should be alert to the possibility that risks may rise the longer these policies are maintained. Though not failsafe, targeted micro- and macroprudential tools should be used to mitigate risks while allowing greater leeway for monetary policy to support the macroeconomy.

Full Text | Survey Article

Boxes
		3.1	Financial Stability Risks Associated with Exit from MP-Plus Policies
		3.2	The Macroeconomic Effectiveness of MP-Plus
		3.3	Balance Sheet Risks of Unconventional Policy in Major Central Banks
Tables
		3.1	Asset Holdings of Major Central Banks Related to MP-Plus, 2008–12
		3.2	Results from Event Study Regressions
		3.3	Marginal Effect of MP-Plus on Banks
		3.4	Calculated Losses on a 10-Year Bond as a Result of a Rise in Interest Rates
		3.5	Risks from MP-Plus and Mitigating Policies
		3.6	Specification of Taylor Rule
		3.7	Results of the Panel Regressions
Figures
	Data	3.1	Changes in Central Bank Balance Sheets, 2006–12
		3.2	OIS Counterparty Spread Decompositions
	Data	3.3	Central Bank Intervention in Real Estate Securities Markets
	Data	3.4	Central Bank Holdings of Domestic Government Securities and Market Liquidity, by Maturity
		3.5	Correlations between Central Bank Holdings of Government Securities and Market Liquidity, by Maturity of Holdings
		3.6	Interest Rate Risk as Reported by U.S. Banks
	Data	3.7	Bank Holdings of Government Debt in Selected Economies
		3.8	Various Measures of the Taylor Gap in the United States

Statistical Appendix

Full Text

Figures
	Data	1.	Major Net Exporters and Importers of Capital in 2012
		2.	Sovereign Credit Default Swap Spreads
		3.	Selected Credit Default Swap Spreads
		4.	Selected Spreads
		5.	Implied Volatility Indices
	Data	6.	United States: Corporate Bond Market
	Data	7.	Euro Area: Corporate Bond Market
	Data	8.	United States: Commercial Paper Market

Tables
	Data	1.	Selected Indicators on the Size of the Capital Markets, 2011
	Data	2.	MSCI Equity Market Indices
	Data	3.	Emerging Markets Bond Index: EMBI Global Sovereign Yield Spreads
	Data	4.	Emerging Market Private External Financing: Total Bonds, Equities, and Loans
	Data	5.	Emerging Market Private External Financing: Bonds
	Data	6.	Emerging Market Private External Financing: Equities
	Data	7.	Emerging Market Private External Financing: Loans
	Data	8.	Equity Valuation Measures: Dividend-Yield Ratios
	Data	9.	Equity Valuation Measures: Price/Earnings Ratios
	Data	10.	Emerging Markets: Mutual Funds

*()Please note that effective with the April 2011 issue, the IMF’s Statistics Department has assumed responsibility for compiling the Financial Soundness Indicators** tables and they are no longer part of this appendix. However, these tables will continue to be linked to the GFSR Statistical Appendix on the IMF’s public website.

The following symbols have been used throughout this appendix: . . . to indicate that data are not available; —— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist; - between years and months (for example, 2008–09 or January–June) to indicate the years or months covered, including the beginning and ending years or months; / between years (for example, 2008/09) to indicate a fiscal or financial year. “Billion” means a thousand million; “trillion” means a thousand billion. “Basis points” refer to hundredths of 1 percentage point (for example, 25 basis points are equivalent to ¼ of 1 percentage point). “n.a.” means not applicable. Minor discrepancies between constituent figures and totals are due to rounding.

Disclaimer: As used in this volume the term “country” does not in all cases refer to a territorial entity that is a state as understood by international law and practice. As used here, the term also covers some territorial entities that are not states but for which statistical data are maintained on a separate and independent basis.