Global Financial Stability Report
Containing Systemic Risks andRestoring Financial Soundness
April 2008
©2008 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
| Preface(90KB pdf file) | |||||
| Executive Summary(90KB pdf file) | |||||
| Chapter I. Assessing Risks to Global Financial Stability | |||||
|---|---|---|---|---|---|
| Full Text | Boxes | Figures | Tables | |||||
| Global Financial Stability Map | |||||
| Credit Deterioration -- How Deep and Widespread? | |||||
| Systemic Risks Have Risen Sharply | |||||
| Will Emerging Markets Remain Resilient? | |||||
| Credit Squeeze or Credit Crunch? | |||||
| Immediate Policy Challenges | |||||
| Annex 1.1. Global Financial Stability Map: Construction and Methodology | |||||
| Annex 1.2. Methodology for Calculating Global Losses and Bank Exposures | |||||
| References | |||||
| Chapter II. Structured Finance: Issues of Valuation and Disclosure | |||||
| Full Text | Summary | Boxes | Figures | |||||
| Valuation and Disclosure of Complex Structured Finance Products | |||||
| The Role of Off-Balance-Sheet Entities | |||||
| Conclusions and Outlook | |||||
| Annex 2.1. The World According to GAAP | |||||
| References | |||||
| Chapter III. Market and Funding Illiquidity: When Private Risk Becomes Public | |||||
| Full Text | Summary | Figures | |||||
| The Nature of Market Liquidity Risks | |||||
| Funding Liquidity Risks | |||||
| Market and Funding Liquidity Dynamics | |||||
| Liquidity Dynamics Since July 2007: An Empirical Investigation | |||||
| The Role of Central Banks During Periods of Market and Funding Illiquidity | |||||
| Central Banks' Response to Liquidity Strains Since July 2007: An Empirical Investigation | |||||
| Recommendations to Enhance Liquidity Risk Management | |||||
| Conclusion | |||||
| Annex 3.1. Liquidity Dynamics Since Summer 2007 | |||||
| References | |||||
| Glossary (270KB pdf file) | |||||
| Annex: Summing Up by the Acting Chair | |||||
| Statistical Appendix(1,331KB pdf file) | |||||
| Key Financial Centers: Figures | Tables | |||||
| Emerging Markets: Figures | Tables | |||||
| Financial Soundness Indicators: Tables | |||||
| Boxes | |||||
|
Chart Chart Chart Chart |
Data Data Data Data |
1.1 | Outlook for U.S. High-Yield Corporate Debt Markets and Default Rates | ||
| Chart | Data | 1.2 | Do Sovereign Wealth Funds Have a Volatility-Absorbing Market Impact? | ||
| Chart | Data | 1.3 | The Rise in Balance Sheet Leverage of Global Banks | ||
| 1.4 | Quantitative Financial Stability Modeling | ||||
|
Chart Chart Chart |
Data Data Data |
1.5 | Banking Stability Index | ||
| Chart | Data | 2.1 | Structured Finance: What Is It and How Did It Get So Large? | ||
| 2.2 | When Is a AAA not a AAA? (Part 1: The ABCs of MBSs and CDOs) | ||||
| Chart Chart |
Data Data |
2.3 | When Is a AAA not a AAA? (Part 2: Actual versus Market-Implied Mortgage-Backed Security Ratings) | ||
| Chart Chart |
Data Data |
2.4 | When Is a AAA not a AAA? (Part 3: Collateralized Debt Obligation Rating Dynamics) | ||
| Chart | Data | 2.5 | Conduits, SIVs and SIV-Lites | ||
| Chart | Data | 2.6 | Consolidation of Structured Investment Vehicles: An Illustrative Example of Issues That Arise | ||
| 3.1 | The Determinants of Market Liquidity | ||||
| 3.2 | Liquidity-Adjusted Value-at-Risk: At the Forefront of Market Liquidity Risk Management? | ||||
| 3.3 | Standard Ways to Measure and Control Bank Liquidity Risks | ||||
| 3.4 | Institute of International Finance Principles of Liquidity Risk Management | ||||
| 3.5 | Central Bank Counterparties | ||||
| 3.6 | Liquidity Regulation and the Basel Process | ||||
| Tables | |||||
| Chart | Data | 1.1 | Estimates of Financial Sector Potential Losses as of March 2008 | ||
| Chart | Data | 1.2 | Typical "Haircut" or Initial Margin | ||
| Chart | Data | 1.3 | Macro and Financial Indicators in Selected Emerging Market Countries | ||
| 1.4 | Changes in Risks and Conditions Since the October 2007 Global Financial Stability Report | ||||
| Chart | Data | 1.5 | Losses by Asset Class as of March 2008 | ||
| Chart | Data | 1.6 | Global Bank Losses as of March 2008 | ||
| 2.1 | Accounting for Securities Held as Financial Assets | ||||
| 2.2 | U.S. Subprime Exposures and Losses | ||||
| 2.3 | Market Participants in Credit Derivatives, 2004 and 2006 | ||||
| 3.1 | Impact of Central Bank Interventions on LIBOR-OIS Spreads | ||||
| Figures | |||||
| Chart | Data | 1.1 | Global Financial Stability Map | ||
| Chart | Data | 1.2 | Mortgage Delinquencies by Vintage Year | ||
| Chart | Data | 1.3 | U.S. Mortgage-Related Securities Prices | ||
| Chart | Data | 1.4 | U.S. and European House Price Changes | ||
| Chart | Data | 1.5 | U.S. and UK Nonconforming Delinquencies by Mortgage Vintage Year | ||
| Chart | Data | 1.6 | Commercial Mortgage Borrowing and Real Estate Prices | ||
| Chart | Data | 1.7 | CMBX Spreads | ||
| Chart | Data | 1.8 | Charge-Off Rates for U.S. Consumer Loans | ||
| Chart | Data | 1.9 | Credit Card Charge-Off Rates versus Credit Card Asset-Backed Spreads on Securities | ||
| Chart | Data | 1.10 | LCDX Prices and Spreads | ||
| Chart | Data | 1.11 | U.S. Leveraged Buyout Loans: Credit Quality Indicators | ||
| Chart | Data | 1.12 | Comparison of Financial Crises | ||
| Chart | Data | 1.13 | Expected Bank Losses as of March 2008 | ||
| Chart | Data | 1.14 | Financial Guarantors | ||
| Chart | Data | 1.15 | Systemic Bank Default Risk | ||
| Chart | Data | 1.16 | Securitization Volume in the European Union (EU-15) | ||
| Chart | Data | 1.17 | Bank Equity Price Changes and Balance Sheet Leverage | ||
| Chart | Data | 1.18 | U.S. Funding Market Liquidity | ||
| Chart | Data | 1.19 | Euro Area Funding Market Liquidity | ||
| Chart | Data | 1.20 | Decomposing Interbank Spreads | ||
| Chart | Data | 1.21 | External Position of Emerging Markets by Region vis-à-vis BIS Reporting Banks | ||
| Chart | Data | 1.22 | Selected European Banks: Dependence on Wholesale Funding as of March 2008 | ||
| Chart | Data | 1.23 | Central and Eastern Europe: Growth in Private Credit and House Prices, 2002-06 | ||
| Chart | Data | 1.24 | Baltic States, Bulgaria, and Romania: Credit to Households by Type | ||
| Chart | Data | 1.25 | Baltic States' 5-Year Credit Default Swap Spreads and Romanian Leu | ||
| Chart | Data | 1.26 | Emerging Markets: Private Sector External Bond Issuance | ||
| Chart | Data | 1.27 | Carry-Trade Index and Currency Volatility | ||
| Chart | Data | 1.28 | Heat Map: Developments in Systemic Asset Classes | ||
| Chart | Data | 1.29 | Spreads Across Credit: Historical Highs, Lows, and Current Levels | ||
| Chart | Data | 1.30 | U.S. Private Sector Net Debt Issuance by Sector | ||
| Chart | Data | 1.31 | G-3 Bank Lending Conditions | ||
| Chart | Data | 1.32 | U.S. Private Sector Borrowing | ||
| Chart | Data | 1.33 | Impulse Response of U.S. GDP to Credit Shocks | ||
| Chart |
Data Data Data Data Data |
1.34 | Global Financial Stability Map: Monetary and Financial Conditions | ||
| Chart |
Data Data Data Data |
1.35 | Global Financial Stability Map: Risk Appetite Conditions | ||
| Chart |
Data Data Data Data Data |
1.36 | Global Financial Stability Map: Macroeconomic Risks | ||
| Chart |
Data Data Data Data Data |
1.37 | Global Financial Stability Map: Emerging Market Risks | ||
| Chart |
Data Data Data Data Data |
1.38 | Global Financial Stability Map: Credit Risks | ||
| Chart |
Data Data Data Data Data Data |
1.39 | Global Financial Stability Map: Market and Liquidity Risks | ||
| Chart | Data | 2.1 | Selected U.S.-Based Financial Institutions: Change in Level 3 and 2 Assets | ||
| 2.2 | Writedowns of Selected Financial Institutions: October 15, 2007-February 14, 2008 | ||||
| 2.3 | Timelines for Implementation of Basel II Framework | ||||
| Chart | Data | 2.4 | Market Participants in Credit Derivatives, 2006 | ||
| Chart | Data | 2.5 | Structured Credit Products by Market Participants | ||
| Chart | Data | 2.6 | Financial Guaranty Industry Insured Portfolio Distribution, 2006 | ||
| Chart | Data | 3.1 | Commercial Banks: Deposit-to-Asset Ratios | ||
| Chart | Data | 3.2 | Aggregate Bank Credit Default Swap Rate and Selected Spreads | ||
| Chart | Data | 3.3 | United States: Selected Money Market Spreads | ||
| Chart | Data | 3.4 | United States: S&P 500 Stock Market Returns and Aggregate Credit Default Swap Rate | ||
| Chart | Data | 3.5 | On-the-Run/Off-the-Run Five-Year U.S. Treasury Note Spread | ||
| Chart | Data | 3.6 | U.S. Model: Selected Implied Correlations from Dynamic Conditional Correlation GARCH Specification | ||
| Chart | Data | 3.7 | Advanced Economies Model: Selected Implied Correlations from Dynamic Conditional Correlation GARCH Specification | ||
| Chart | Data | 3.8 | Three-Month LIBOR to Overnight Index Swap Spreads | ||
| Chart | Data | 3.9 | Central Bank Key Policy and Overnight Money Market Rates | ||
| Chart | Data | 3.10 | European Central Bank's Liquidity Provision and Reserve Holdings | ||
| Chart | Data | 3.11 | Euro Area: Selected European Central Bank Policy Actions and Term Funding Stress | ||
| Chart | Data | 3.12 | United States: Selected Federal Reserve Policy Actions and Term Funding Stress | ||
| Chart | Data | 3.13 | U.S. Model: Implied Correlations from Dynamic Conditional Correlation GARCH Specification | ||
| Chart | Data | 3.14 | Advanced Economies Model: Implied Correlations from Dynamic Conditional Correlation GARCH Specification | ||
| Chart | Data | 3.15 | Emerging Markets Model: Implied Correlations from Dynamic Conditional Correlation GARCH Specification | ||
| Statistical Appendix | |||||
| Key Financial Centers | |||||
| Figures | |||||
| Chart | Data | 1. | Major Net Exporters and Importers of Capital in 2007 | ||
| Chart | Data | 2. | Exchange Rates: Selected Major Industrial Countries | ||
| Chart | Data | 3. | United States: Yields on Corporate and Treasury Bonds | ||
| Chart | Data | 4. | Selected Spreads | ||
| Chart | Data | 5. | Nonfinancial Corporate Credit Spreads | ||
| Chart | Data | 6. | Equity Markets: Price Indexes | ||
| Chart | Data | 7. | Implied and Historical Volatility in Equity Markets | ||
| Chart | Data | 8. | Historical Volatility of Government Bond Yields and Bond Returns for Selected Countries | ||
| Chart | Data | 9. | Twelve-Month Forward Price/Earnings Ratios | ||
| Chart | Data | 10. | Flows into U.S.-Based Equity Funds | ||
| Chart | Data | 11. | United States: Corporate Bond Market | ||
| Chart | Data | 12. | Europe: Corporate Bond Market | ||
| Chart | Data | 13. | United States: Commercial Paper Market | ||
| Chart | Data | 14. | United States: Asset-Backed Securities | ||
| Tables | |||||
| Data | 1. | Global Capital Flows: Inflows and Outflows | |||
| Data | 2. | Global Capital Flows: Amounts Outstanding and Net Issues of International Debt Securities by Currency of Issue and Announced International Syndicated Credit Facilities by Nationality of Borrower | |||
| Data | 3. | Selected Indicators on the Size of the Capital Markets, 2006 | |||
| Data | 4. | Global Over-the-Counter Derivatives Markets: Notional Amounts and Gross Market Values of Outstanding Contracts | |||
| Data | 5. | Global Over-the-Counter Derivatives Markets: Notional Amounts and Gross Market Values of Outstanding Contracts by Counterparty, Remaining Maturity, and Currency | |||
| Data | 6. | Exchange-Traded Derivative Financial Instruments: Notional Principal Amounts Outstanding and Annual Turnover | |||
| Data | 7. | United States: Sectoral Balance Sheets | |||
| Data | 8. | Japan: Sectoral Balance Sheets | |||
| Data | 9. | Europe: Sectoral Balance Sheets | |||
| Emerging Markets | |||||
| Figures | |||||
| Chart | Data | 15. | Emerging Market Volatility Measures | ||
| Chart | Data | 16. | Emerging Market Debt Cross-Correlation Measures | ||
| Tables | |||||
| Data | 10. | Equity Market Indices | |||
| Data | 11. | Foreign Exchange Rates | |||
| Data | 12. | Emerging Market Bond Index: EMBI Global Total Returns Index | |||
| Data | 13. | Emerging Market Bond Index: EMBI Global Yield Spreads | |||
| Data | 14. | Emerging Market External Financing: Total Bonds, Equities, and Loans | |||
| Data | 15. | Emerging Market External Financing: Bond Issuance | |||
| Data | 16. | Emerging Market External Financing: Equity Issuance | |||
| Data | 17. | Emerging Market External Financing: Loan Syndication | |||
| Data | 18. | Equity Valuation Measures: Dividend-Yield Ratios | |||
| Data | 19. | Equity Valuation Measures: Price-to-Book Ratios | |||
| Data | 20. | Equity Valuation Measures: Price/Earnings Ratios | |||
| Data | 21. | United States: Mutual Fund Flows | |||
| Financial Soundness Indicators | |||||
| Tables | |||||
| Data | 22. | Bank Regulatory Capital to Risk-Weighted Assets | |||
| Data | 23. | Bank Capital to Assets | |||
| Data | 24. | Bank Nonperforming Loans to Total Loans | |||
| Data | 25. | Bank Provisions to Nonperforming Loans | |||
| Data | 26. | Bank Return on Assets | |||
| Data | 27. | Bank Return on Equity | |||
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