Global Financial Stability Report

Grappling with Crisis Legacies

September 2011

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.

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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.


Contents


Chapter 1: Overcoming Political Risks and Crisis Legacies
Full Text    |   Video    |   Boxes   |    Figures   |   Tables
Global Stability Assessment
Sovereign Vulnerabilities and Contagion Risks
Is the Search for Yield Leading to Credit Excesses?
Policy Priorities
Annex 1.1. Macro-Financial Linkages in Emerging Markets and Impact of Shocks on Bank Capital Adequacy Ratios
References

Chapter 2: Long-Term Investors and Their Asset Allocation: Where Are They Now?
Full Text    |   Video    |   Boxes   |    Figures   |   Tables   |   Press Points
Summary
Longer-Term Trends in Global Asset Allocation
Determinants of Private Asset Allocation
Conclusions and Policy Implications
Annex 2.1. Asset Allocation: Theory and Practice
Annex 2.2. Results of the IMF Survey on Global Asset Allocation
Annex 2.3. Defining Foreign Exchange Reserves and Sovereign Wealth Funds
Annex 2.4. Theoretical Foundation of the Regression Specification and Detailed Regression Results
References

Chapter 3: Toward Operationalizing Macroprudential Policies: When to Act?
Full Text    |   Video    |   Boxes   |    Figures   |   Tables   |   Press Points
Summary
From Sources of Risk to Systemic Risk Indicators: Helpful Hints from a Structural Macro-Financial Model
The Quest for Leading Indicators of Financial Sector Distress
Macroprudential Indicators and Policies: Stitching Them Together
Conclusions and Practical Guidelines
Annex 3.1. Description of the Structural Model
Annex 3.2. Predicting the Probability of a Banking Crisis
Annex 3.3. Finding a Robust Set of Near-Coincident Indicators
References

Statistical Appendix (*) (1100 KB pdf file)

Figures    |   Tables

Boxes
  1.1 Market Confidence Deteriorates amid Policy Uncertainty
  1.2 How Concerned Are Markets about U.S. Sovereign Risks?
  1.3 Quantifying Spillovers from High-Spread Euro Area Sovereigns to the European Union Banking Sector
1.4 Why Do U.S. Money Market Funds Hold So Much European Bank Debt?
  1.5 Gauging Financial Stability Risks in China
1.6 Can Macroprudential Policies Contain the Property Boom?
1.7 Euro Area Developments in Crisis Management
1.8 An Empirical Analysis of the Effectiveness of Macroprudential Instruments
2.1 Asset Allocation of Reserve Managers
2.2 A New Asset Allocation Framework Using Risk -Factors
Data 2.3 The Low Interest Rate Environment and Pension Funds
2.4 Sovereign Asset Management and the Global Financial Crisis
3.1 Monitoring and Policy Tools at New U.S., U.K, and EU Macroprudential Authorities
3.2 Legal Prerequisites for Housing Finance Systems
  3.3 Risk-Materialization: The Search for Near-Coincident Indicators of Financial System Stress
3.4 An Empirical Analysis of the Effectiveness of Macroprudential Instruments
 
Tables
Data 1.1 Indebtedness and Leverage in Selected Advanced Economies
Data 1.2 Sovereign Debt: Market and Vulnerability Indicators
Data 1.3 Emerging Market Banks: Sensitivity to Macroeconomic and Funding Shocks
Data 1.4 Macroeconomic and Financial Indicators for Selected Emerging Economies
  2.1 Assets under Management by Institutional Investors
  2.2 Assets of Selected Sovereign Wealth Funds
  2.3 Asset Manager's Assets under Management: Origin of Funds
  2.4 Summary of Panel Regression Results on Equity and Bond Flows
  2.5 Simulated Effects of Shocks on Regional Flows: Emerging Markets
  2.6 Evaluating the Economic Significance of Crisis Indicator Coefficients
  2.7 Expected Period before Policy Rate Rise
  2.8 Top Five Factors Considered in Cross-Border Investment since End-2006
  2.9 Regional Allocation
  2.10 Asset Allocation by Asset Class
  2.11 Survey Participants' Assets under Management
  2.12 Asset Managers' Assets under Management: Origin of Funds
  2.13 Asset Allocation by Asset Class
  2.14 Regional Allocation
  2.15 Top 10 Investment Destinations
  2.16 Top Five Factors Considered in Country Allocation
  2.17 Top Five Factors Considered in Cross-Border Investment since End-2006
  2.18 Experience and Expectations of Portfolio Risk Exposures and Returns
  2.19 Expected Period before Policy Rate Rise
  2.20 Use of Hedging Instruments
  2.21 Use of Derivatives to Enhance Yields
  2.22 Survey Participants
  2.23 Sovereign Wealth Fund Classification
  2.24 Determinants of Equity and Bond Flows: Panel Regression Results
  3.1 Noise-to-Signal Ratios for Different Credit Indicators
  3.2 Predictive Power of Various Indicators “X” Years before the Crisis
  3.3 Long-Run Steady-State Volatilities, by Type of Capital Requirement
  3.4 Determinants of Systemic Banking Crises: Single–Indicator Probit Model
  3.5 Determinants of Systemic Banking Crises: Two–Indicator Probit Model
  3.6 Granger Causality of Systemic Risk Measure to the Event Indicator
  3.7 Forecastibility of Extreme Events: Logit Regressions
  3.8 Turning Points: Quandt-Andrews Breakpoint Test on Persistence and Level
  3.9 Total Score
 
Figures
1.1 Phases of the Crisis
Data 1.2 Global Financial Stability Map
Data 1.3 Global Financial Stability Map: Assessment of Risks and Conditions
Data 1.4 Asset Price Performance since the April 2011 GFSR
Data 1.5 Sovereign Vulnerabilities and Market Pressures
Data 1.6 Historical Volatility in One-Month Treasury Bills During Debt Ceiling Negotiations
Data 1.7 Change in Advanced Economy Government Bond Yields around Sovereign Debt Downgrades
1.8 Developments in Sovereign Spreads, 2011
1.9 Debt Dynamics
Data 1.10 Changes in the Sovereign Investor Base
1.11 Bond Market Volatility
Data 1.12 Financing Sensitivity to an Interest Rate Shock
Data 1.13 Size of High-Spread Euro Area Government Bond Markets
Data 1.14 European Credit Risks and Market Capitalization
1.15 Spreads on Bank Five-Year Credit Default Swaps
Data 1.16 Bank Debt Issuance as a Percent of Maturing Debt, 2011
Data 1.17 Cumulative Spillovers from High-Spread Euro Area Sovereigns to the European Union Banking System
Data 1.18 Spillovers from High-Spread Euro Area Sovereigns to Country Banking Systems
1.19 Distribution of Spillovers from High-Spread Euro Area Sovereigns to European Banks
Data 1.20 Spillovers from High-Spread Euro Area Sovereigns to Insurers
1.21 Advanced Economy Bank Funding, by Source, 2011:Q1
1.22 U.S. Prime Money Market Fund Exposures to Banks
Data 1.23 Deposit Growth in High-Spread Euro Area Countries
Data 1.24 Contributions to Change in Bank Balance Sheets since End-2009
Data 1.25 Deleveraging Scenario: Change in High-Spread Euro Area Bank Credit to the Nonfinancial Private Sector
Data 1.26 Sovereign Credit Default Swaps: Gross Outstanding Amount
1.27 European Bank Core Tier 1 Ratios
1.28 Phases of the Credit Cycle
Data 1.29 U.S. Household Debt, and Mortgage Delinquencies at Banks
Data 1.30 Bank Lending Conditions for Nonfinancial Corporations
Data 1.31 U.S. BBB-Rated Corporate Credit Spreads versus Real Federal Funds Rate
Data 1.32 Current versus Past U.S. Credit and Economic Cycles: Federal Funds Rate, BBB-Rated Corporate Spreads, and Real Cumulative GDP Growth
Data 1.33 Global Securitized and Structured Products Issuance
1.34 Hedge Fund Assets under Management
Data 1.35 Financing by U.S. Nonfinancial Corporations
Data 1.36 High-Yield Gross Issuance and Leveraged Loan Covenants
Data 1.37 Emerging Markets: Capital Flows, Credit, and Equity Prices
Data 1.38 Net Capital Flows by Region
Data 1.39 Emerging Market Corporate External Issuance
Data 1.40 Emerging Market Corporate versus U.S. High-Yield Debt: Yields, Leverage, Returns
Data 1.41 Emerging Markets External Corporate Issuance, by Sector
Data 1.42 Emerging Markets: Total Credit to the Nonbanking Sector
Data 1.43 Model Prediction for NPL Ratios in 2011 and 2012 Based on 2010 Values
Data 1.44 Impact when Net Capital Flows Decline
Data 1.45 Impact when Terms of Trade Decline
Data 1.46 Change in Capital Adequacy Ratios under Combined Macro Shocks
1.47 Available Set of Policy Choices Is Shrinking
Data 1.48 Impulse Responses: Model Specification 1
Data 1.49 Impulse Responses: Model Specification 2
Data 1.50 Macro Scenarios under Combined Shocks
Data 2.1 Asset Allocation of Institutional Investors
Data 2.2 Assets of Institutional Investors by Country
Data 2.3 Asset under Management by Type of Institutional Investors
Data 2.4 Global Asset Allocation of Institutional Investors by Selected Country
Data 2.5 Assets under Management by Type of Institutional Investor and Selected Country, 2009
Data 2.6 Foreign Exchange Reserves, Excluding Gold
2.7 Selected Sovereign Wealth Funds: Asset Allocation by Type of Fund, December 2010
2.8 Simulated Effects of Shocks on Regional Flows: Emerging Markets
Data 2.9 Regional Distribution of Equity and Bond Mutual Fund Investments
2.10 Minimum Variance Frontier
3.1 Road Map of the Chapter
3.2 Behavior of Four Indicators under Three Shock Scenarios
Data 3.3 Event Study Results: Aggregate Indicators Three Years before to Two Years after Crises
3.4 Probability of a Systemic Banking Crisis
3.5 Estimated Probability of a Systemic Banking Crisis in the United States: Effect of Changes in Credit
3.6 Effects of Macroprudential Policy: Time-Varying Capital Requirements for an Asset-Price Shock
3.7 Effects of Productivity Shock and Time-Varying Capital Requirements on Real GDP
3.8 Marginal Effect on Probability of Crisis of Change in Ratio of Credit to GDP
 
Statistical Appendix
  Figures
Data 1. Major Net Exporters and Importers of Capital in 2010
2. Sovereign Credit Default Swap Spreads
3. Selected Credit Default Swap Spreads
4. Selected Spreads
5. Implied Volatility Indices
Data 6. Twelve-Month Forward Price/Earnings Ratios
Data 7. United States: Corporate Bond Market
Data 8. Euro Area: Corporate Bond Market
Data 9. United States: Commercial Paper Market
 
  Tables
Data 1. Selected Indicators on the Size of the Capital Markets, 2010
Data 2. MSCI Equity Market Indices
Data 3. Emerging Market Bond Index: EMBI Global Yield Spreads
Data 4. Emerging Market External Financing: Total Bonds, Equities, and Loans
Data 5. Emerging Market External Financing: Bonds
Data 6. Emerging Market External Financing: Equities
Data 7. Emerging Market External Financing: Loans
Data 8. Equity Valuation Measures: Dividend-Yield Ratios
Data 9. Equity Valuation Measures: Price/Earnings Ratios
Data 10. Emerging Markets: Mutual Fund Flows
 
(*)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.