The New Global Imbalance: Too Much Financial Risk-Taking, Not Enough Economic-Risk Taking


GFSR By José Viñals

(Versions in Español中文)

I have three key messages for you today:

1. Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.

2. Banks are safer but may not be strong enough to vigorously support the recovery. And risks are shifting to the shadow banking system in the form of rising market and liquidity risks. If left unaddressed, these risks could compromise global financial stability.

3. In order to address this new global imbalance, we must promote economic risk-taking by improving the transmission of monetary policy to the real economy. And we must address financial excesses through better micro- and macroprudential policies.

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What’s Lurking in the Shadows of China’s Banks


By Steven Barnett and Shaun Roache

(Versions in 中文)

“Shadow” banking: a surprisingly colorful term for our staid economics profession. Intended or not, it conjures images of dark, sinister, and even shady transactions. With a name like “shadow banking” it must be bad. This is unfair. While the profession lacks a uniform definition, the idea is financial intermediation that takes place outside of banks—and this can be good, bad, or otherwise.

Our goal here is to shine a light on shadow banking in China. We at the IMF have used many terms. Last year, we had a descriptive one, albeit a mouthful—off-balance sheet and nonbank financial intermediation. The April 2014 Global Financial Sector Report (GFSR) called it nonbank intermediation. This year our China Article IV report used the term shadow banking.

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Banking on the Government


By Jesus Gonzalez-Garcia and Francesco Grigoli

(Version in Español)

Government ownership of banks is still common around the world, despite the large number of privatizations that took place over the past four decades as governments reduced their role in the economy. On average, state-owned banks hold 21 percent of the assets of the banking system worldwide. In Latin American and Caribbean countries, the public banks’ share is about 15 percent, with some of them showing very large shares, for instance, Argentina, Brazil, Uruguay, and Costa Rica are all over 40 percent (see Figure 1).

State-owned banks play an important role in the financial system. They fulfill functions that are not performed by private banks, provide financing for projects that benefit the rest of the economy, and provide countercyclical lending (lending more when the economy is weak). But public banks usually respond to the needs of governments owing to the state’s obvious involvement in their administration. As a result, government’s participation in the banking system may weaken fiscal discipline by allowing the public sector to access financing that they would not obtain from other sources.

In our recent study, we use a panel dataset for 123 countries to test whether a larger presence of state-owned banks in the banking system is associated with more credit to the public sector, larger fiscal deficits, higher public debt ratios, and the crowding out of credit to the private sector. 

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The MENA Jobs and Growth Challenge: How Can Finance Help?


By Masood Ahmed

Most policymakers in the Middle East and North Africa agree that stronger economic growth is a crucial component of any strategy to address the region’s persistently high levels of unemployment and raise its living standards. One question that arises is: What role can the financial sector play?

It is well known that a dynamic and vibrant financial sector will improve economic outcomes for a country, leading to faster and more equitable economic growth. The key to answering this question, therefore, is to look to the past and examine how the financial sector has contributed historically to growth in the region. Continue reading

Avoiding Another Year of Living Dangerously: Time to Secure Financial Stability


By José Viñals

In various guises, the “Year of Living Dangerously” has been used to describe the global financial crisis, the policy response to the crisis, and its aftermath.

But, we’ve slipped well beyond a year and the financial system is still flirting with danger. Durable financial stability has, so far, proven elusive.

Financial stability risks may have eased, reflecting improvements in the economic outlook and continuing accommodative policies. But those supportive policies—while necessary to restart the economy—have also masked serious, underlying financial vulnerabilities that need to be addressed as quickly as possible. Continue reading

New Policy Ideas for a New World: Interview with Robert Solow


By iMFdirect

There has been plenty of reflection, during the past few years, on the causes of the global financial crisis. But, last month’s conference at the IMF focused on taking what we’ve learned from the crisis and looking toward the future of economic policy.

Robert Solow—Professor Emeritus at Massachusetts Institute of Technology and Nobel Prize winning economist—was among those who brought interesting perspectives and a wealth of experience to the conference discussions.

Watch Professor Solow’s interview and hear more about what he has to say on… Continue reading

Is There a Silver Lining to Sluggish Credit Growth in the Gulf Countries?


By Masood Ahmed

(Version in عربي )

Bank credit has been very slow to pickup in the six nations of the Gulf Cooperation Council (GCC). How big a problem is this for their economic recovery?

Sluggish credit growth in the post-crisis period was hardly a unique development, as indicated in our latest Regional Economic Outlook. More than a dozen countries in the Middle East and Central Asia region, and countless more outside the region, shared this experience. But while there are clearer signs of recovery in some countries, credit to the private sector is still barely growing in the GCC, notwithstanding policy efforts to revive it.

It might seem easy to ring the alarm bells. After all, won’t the prospect of weak credit growth restrain economic activity in the short-term? Perhaps. But we believe the negative impact of credit growth may not be quite so severe.

Why not? In part, that answer lies in how we arrived at the current situation. Continue reading

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