World Economic and Financial Surveys
Global Financial Stability Report
Sovereigns, Funding, and Systemic Liquidity
October 2010
©2010 International Monetary Fund
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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 (1000 Kb pdf file) | |||||
Preface (376kb pdf file) | |||||
Chapter I. Economic Uncertainty, Sovereign Risk, and Financial Fragilities | |||||
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Full Text | Video | Boxes | Figures | Tables | Press Points | |||||
A. What Is the Outlook for Global Financial Stability? | |||||
B. Sovereign Risks and Financial Fragilities | |||||
C. Sovereign and Banking System Spillovers | |||||
D. Managing Upside Risks to Emerging Markets | |||||
E. Policy Priorities | |||||
Annex 1.1. Impact of Adverse Growth Shock on Advanced Economy Debt Ratios | |||||
Annex 1.2. Systemic Contingent Claims Analysis of Banking and Sovereign Risk | |||||
Annex 1.3. Analyzing Portfolio Inflows to Emerging Markets and Other Advanced Markets | |||||
Annex 1.4. Asia’s Local Currency Corporate Bond Market—A New Spare Tire | |||||
Annex 1.5. Where Now for Fannie and Freddie? A Review of the Options | |||||
References | |||||
Chapter II. Systemic Liquidity Risk: Improving the Resilience of Institutions and Markets | |||||
Full Text | Video | Boxes | Figures | Press Points | |||||
Summary | |||||
Review of the Systemic Liquidity Shock through Various Short-Term Funding Markets | |||||
Funding Markets as Propagation Channels of Systemic Liquidity Risk | |||||
Policies to Strengthen the Resilience of Funding Markets | |||||
Policies to Strengthen Prudential Liquidity Regulations for Institutions | |||||
Outstanding Policy Issues in Addressing Systemic Liquidity Risk | |||||
Conclusions and Policy Considerations | |||||
References | |||||
Chapter III. The Uses and Abuses of Sovereign Credit Ratings | |||||
Full Text | Video | Boxes | Figures | Press Points | |||||
Summary | |||||
Basic Rating Definitions and Principles | |||||
The Evolving Roles and Regulation of Credit Ratings and Credit Rating Agencies | |||||
Fundamental Sovereign Credit Risk Analysis | |||||
The Accuracy and Informational Value of Sovereign Ratings | |||||
Conclusions and Policy Implications | |||||
Annex 3.1. Credit Rating Agencies around the World | |||||
References | |||||
Glossary (277KB pdf file) | |||||
Annex: Summing Up by the Acting Chair | |||||
Statistical Appendix (1,6KB pdf file) | |||||
Key Financial Centers: Figures | Tables | |||||
Emerging Markets: Figures | Tables | |||||
Financial Soundness Indicators: Tables | |||||
Boxes | |||||
1.1 | Japan: Risk of Sovereign Interest Rate Shock | ||||
1.2 | Risk Transmission between Sovereigns and Banks in Europe | ||||
1.3 | Risks of a Double Dip in the U.S. Real Estate Markets | ||||
1.4 | China’s Banking System: Managing Challenges after Credit Expansion | ||||
1.5 | Brazil's Tax on Capital Inflows, 2009–10 | ||||
1.6 | Macroeconomic Costs of Regulatory Measures | ||||
1.7 | Key Findings of the U.S. Financial Sector Assessment Program | ||||
1.8 | Calibrating a Sovereign Risk-Adjusted Contingent Claims Analysis Balance Sheet | ||||
2.1 | Role of Money Markets | ||||
2.2 | Disruptions to Cross-Border Funding and Foreign Exchange Swaps | ||||
2.3 | The Repo Markets: A Primer | ||||
2.4 | What Went Wrong in Financial Firms' Liquidity Risk Management Practices? | ||||
2.5 | Repo Infrastructure: Trading, Clearing, and Settlement | ||||
Chart | Data | 3.1 | The Global Credit Rating Agency Landscape | ||
3.2 | Spillover Effects of Sovereign Rating Downgrades | ||||
3.3 | Developments in the Regulation of Credit Rating Agencies | ||||
3.4 | An Overview of the Factors Influencing Sovereign Credit Ratings | ||||
3.5 | Empirical Studies of Rating Determinants | ||||
Chart | Data | 3.6 | Greece: An Examination of the Evolution of Rating Actions | ||
3.7 | Empirical Tests of Rating Information Value | ||||
3.8 | Point-in-Time versus Through-the-Cycle Credit Ratings | ||||
Tables | |||||
Data | 1.1 | Sovereign Market and Vulnerability Indicators | |||
Data | 1.2 | Low-Growth Shock: Impact Analysis and Ranking | |||
2.1 | Typical Haircut on Term Securities Financing Transactions | ||||
3.1 | Long-Term Senior Debt Rating Symbols | ||||
3.2 | Rating Agency Statements on What Their Ratings Are Designed to Measure | ||||
3.3 | Key Factors in Sovereign Credit Rating Assessments | ||||
3.4 | Sovereign Rating “Failures” during 1997–98 Asian Crisis | ||||
3.5 | Sovereign Rating “Failures” during the 2008—10 Crisis | ||||
Figures | |||||
Data | 1.1 | Global Financial Stability Map | |||
Data | 1.2 | Global Financial Stability Map: Assessment of Risks and Conditions | |||
Data | 1.3 | Markets Heat Map | |||
Data | 1.4 | Short-Term Uncertainty Has Fallen, but Uncertainty Remains High in the Medium Term | |||
1.5 | Spillovers from the Sovereign to the Banks and Banks to Sovereigns | ||||
Data | 1.6 | Ten-Year Sovereign Swap Spreads | |||
Data | 1.7 | Impact of a –1 Percent Growth Shock from Wiorld Economic Outlook Baseline, 2010–15 | |||
Data | 1.8 | Sovereign Gross Funding Requirements | |||
1.9 | Custodial Bond Flows, 2007–June 2010 | ||||
Data | 1.10 | Exports and Fiscal Balance | |||
Data | 1.11 | Developments in Sovereign Credit Default Swap Spreads | |||
Data | 1.12 | Bank Writedowns or Loss Provisions by Region | |||
Data | 1.13 | Capital Raised by Banks and Tier 1 Ratios | |||
Data | 1.14 | Banking Sector Credit Default Swap Spreads | |||
1.15 | U.S. Dollar Th ree-Month Forward–Overnight Index Swap Spreads and Basis Swaps | ||||
1.16 | Bank Bond Maturity Profile | ||||
1.17 | Bank Debt Maturing as a Percentage of Total Outstanding | ||||
Data | 1.18 | Euro Area: Bank Cumulative Net Issuance | |||
Data | 1.19 | Reliance on Wholesale Funding | |||
Data | 1.20 | European Central Bank Lending to Euro Area Monetary Financial Institutions | |||
1.21 | Mature Market Credit Default Swap Spreads | ||||
Data | 1.22a. | Lending Conditions | |||
Data | 1.22b. | Bank Lending to Private Sector | |||
Data | 1.23 | Bank for International Settlements Cross-Border Bank Flows by Region | |||
Data | 1.24 | Bank for International Settlements Cumulative Cross-Border Bank Flows by Country | |||
Data | 1.25 | Cross-Border Bank Flows and Local Credit | |||
Data | 1.26 | Emerging and Advanced Economies, Equity Returns | |||
1.27a. | Sovereign Ratings | ||||
1.27b. | Government Debt and Growth Diff erential | ||||
1.28 | Cumulative Net Foreign Flows to Emerging Market Bond and Equity Funds | ||||
Data | 1.29a. | Emerging Market Equities Market Capitalization and Investor Allocations | |||
Data | 1.29b. | Portfolio Flows to Emerging Markets and Developing Countries | |||
Data | 1.30 | Equity and Debt Portfolio Inflows | |||
Data | 1.31 | Nominal Eff ective Exchange Rate Performance | |||
Data | 1.32 | Change in Official Reserves | |||
Data | 1.33 | Sensitivity of Money Supply to Central Bank Foreign Assets | |||
Data | 1.34 | Public Debt, Advanced Countries: Impact of Adverse Growth Shock | |||
1.35 | Brazilian and Korean Securities Flows | ||||
1.36 | Correlation between Bank of New York Mellon iFlowSM and Balance of Payments Flows | ||||
1.37 | Cumulative Bank of New York Mellon iFlowSM Infl ows to Advanced and Emerging Economies | ||||
1.38 | Cumulative Bank of New York Mellon iFlowSM Infl ows to Emerging and Other Economies, by Region | ||||
1.39 | Variance Ratios of Equity Flows to Selected Markets | ||||
1.40 | Impulse Response Functions | ||||
Data | 1.41 | Outstanding Local Currency Corporate Bonds | |||
Data | 1.42 | Local Currency Government and Corporate Bond Issuance | |||
Data | 1.43 | Spread Between Prime Rate and Corporate Bond Yield Index | |||
Chart | Data | 2.1 | U.S. Private-Label Term Securitization Issuance by Type | ||
Chart | Data | 2.2 | United States: Outstanding Amount of Commercial Paper | ||
Chart | Data | 2.3 | Bank Bond Issuance | ||
Chart | Data | 2.4 | Aggregate Bank Credit Default Swap Rate and Selected Spreads | ||
2.5 | U.S. Dollar Currency Spread Implied by Three-Month Forex Swap Contracts | ||||
2.6 | Selected Indicators of Short-Term Funding Rates | ||||
Chart | Data | 2.7 | Share of Average Daily Turnover of Secured and Unsecured Lending and Borrowing for Euro Area Banks | ||
2.8 | Outstanding Amounts of Private Market Repo Operations | ||||
2.9 | Central Bank Temporary Reserve-Providing Operations | ||||
Chart | Data | 2.10 | Commercial Bank Funding Structure | ||
Chart | Data | 2.11 | United States: Funding Structure of Selected Largest Commercial and Investment Banks | ||
Chart | Data | 2.12 | Bank Deposits versus Money Market Mutual Funds | ||
Chart | Data | 3.1 | Ratings of AAA-Rated U.S. Mortgage-Related Securities | ||
Chart | Data | 3.2 | Sovereign Rating and Outlook Changes | ||
Chart | Data | 3.3 | Moody’s Sovereign Rating and Outlook Changes by Selected Regions, May 2007–June 2010 | ||
Chart | Data | 3.4 | Rating Drivers, May 2007–June 2010 | ||
3.5 | Average Credit Default Swap Spread and Ratings for Countries Rated by Moody’s, 2005–10 | ||||
Chart | Data | 3.6 | Impact of Change in Sovereign Ratings and Credit Warnings on Credit Default Swap Spread | ||
Chart | Data | 3.7 | Ratings One Year Prior to Sovereign Default, 1975–2009 | ||
3.8 | Sovereign Rating Performance by Standard & Poor’s | ||||
3.9 | Average Proportion of S&P Sovereign Ratings Unchanged Over One Year | ||||
3.10 | Average Proportion of S&P Sovereign Ratings Downgraded More Than Two Notches Over One Year | ||||
3.11 | Asian Crisis: Sovereigns Rated by Moody’s between July 31, 1997 and December 31, 1998 | ||||
3.12 | Current Crisis: Sovereigns Rated by Moody’s between July 31, 2007 and June 30, 2010 | ||||
Statistical Appendix | |||||
Key Financial Centers | |||||
Figures | |||||
Data | 1. | Major Net Exporters and Importers of Capital in 2009 | |||
Data | 2. | Exchange Rates: Selected Major Industrial Countries | |||
Data | 3. | United States: Yields on Corporate and Treasury Bonds | |||
Data | 4. | Selected Spreads | |||
Data | 5. | Nonfinancial Corporate Credit Spreads | |||
Data | 6. | Equity Markets: Price Indices | |||
Data | 7. | Implied and Historical Volatility in Equity Markets | |||
Data | 8. | Historical Volatility of Government Bond Yields and Bond Returns for Selected Countries | |||
Data | 9. | Twelve-Month Forward Price/Earnings Ratios | |||
Data | 10. | Flows into U.S.-Based Equity Funds | |||
Data | 11. | United States: Corporate Bond Market | |||
Data | 12. | Europe: Corporate Bond Market | |||
Data | 13. | United States: Commercial Paper Market | |||
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 Signed International Syndicated Credit Facilities by Nationality of Borrower | |||
Data | 3. | Selected Indicators on the Size of the Capital Markets, 2009 | |||
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 and Other Markets | |||||
Figures | |||||
Data | 15. | Emerging Market Volatility Measures | |||
Data | 16. | Emerging Market Debt Cross-Correlation Measures | |||
Tables | |||||
Data | 10. | MSCI Equity Market Indices | |||
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. | Emerging Markets: 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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On this site, 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. Dependent territories of member countries are listed alphabetically followed by a description of the constitutional relationships with their member countries. |