Not Making the Grade: Report Card on Global Financial Reform

Posted on September 28, 2012 by iMFdirect

by Laura Kodres

Despite a host of reforms in the right direction, the financial structures that were in place before the global crisis have not actually changed that much, and they need to if the global financial system is to become a safer place.

Although the intentions of policymakers are clear and positive, the system remains precarious.

Our new study presents an interim report card on progress toward a safer financial system. Overall, there is still a long way to go.

How we measure progress

In our study, we first tried to pay attention to those features of financial systems related to the crisis—the large dominant, highly interconnected institutions, the heavy role of nonbanks, and the development of complex financial products for instance—features that need to be addressed in some way.

To do this we needed to construct measures of these features in a way that would allow us to gauge how well the reforms are working toward changing them. We looked at a lot of data, but we focus on three types of features.

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Filed under: Advanced Economies, Economic Crisis, Finance, Financial Crisis, Financial regulation, Financial sector supervision, growth, IMF, International Monetary Fund | Tagged: , , , , , , , , , , , , , , , , , , , , , , , | 11 Comments »

The Long-term Price of Financial Reform

Posted on September 11, 2012 by iMFdirect

by André Oliveira Santos and Douglas J. Elliott

In response to the global crisis, policymakers around the world are instituting the broadest reform of financial regulation since the Great Depression.

Some in the financial industry claim the long-run economic costs of these global reforms outweigh the benefits. But our new research strongly suggests the opposite—the reforms are well worth the money.

Granted, just as adding fenders, safety belts, airbags, and crash avoidance features can make cars slower, we know that additional safety measures can slow down the economy in years when there is no crisis. The payoff comes from averting or minimizing a disaster.

Five years after the onset of the current crisis, we sadly know all too well the cost in terms of economic growth, so the potential gains in avoiding future crises are very large.

Our study finds that the likely long-term increase in credit costs for borrowers is about one quarter of a percentage point in the United States and lower elsewhere. This is roughly the size of one small move by the Federal Reserve or other central banks. A move of that size rarely has much effect on a national economy, suggesting relatively small economic costs from these reforms.

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Filed under: Advanced Economies, Economic Crisis, Financial Crisis, Financial regulation, growth, IMF, International Monetary Fund | Tagged: , , , , , , , , , , , , , , , , , , , , | 8 Comments »

Lurking in the Shadows—The Risks from Nonbank Intermediation in China

Posted on November 3, 2011 by iMFdirect

By Nigel Chalk

(Version in 中文)

One of my all-time favorite movies is “The Third Man” starring Orson Welles and Joseph Cotten. It is a British film noir from the 1940s. Perhaps the most striking part of the movie is the shadowy cinematography, set in post-World War II Vienna. Strangely, it springs to mind lately when I have been thinking of China.

Many China-watchers looked on in awe in 2009 as the government’s response to the global financial crisis unfolded, causing bank lending as a share of the economy to expand by close to 20 percentage points in less than a year. This, subsequently, led to a lot of hand-wringing about the consequences of those actions and the eventual credit quality problems that China would have to confront and manage.

However, around the same time, a less visible phenomenon was also getting underway. One that, like Orson Welles’ character in the movie, resided firmly in the shadows. Various types of nonbank financial intermediaries—some new, some old—were gearing up to provide a conduit through which China’s high savings would be tapped to finance the corporate sector. The available data on this is terrible—the central bank’s numbers on social financing are the only credible and comprehensive public source, but even that gives only a partial picture.

Talking to people in China, and looking at what numbers are available, one cannot help but have an uneasy feeling that more credit is now finding its way into the economy outside of the banking system than is actually flowing through the banks. (more…)

Filed under: Asia, Financial regulation, Financial sector supervision, International Monetary Fund | Tagged: , , , , , , , , , , , , , , , , | 24 Comments »

The Other Rebalancing: Asia’s Quest for Inclusive Growth

Posted on October 17, 2011 by iMFdirect

By Anoop Singh

(Versions in 中文, 日本語)

For the past two or three decades, rising inequality—inequality of incomes, of economic outcomes and of economic opportunities—has taken a back seat to the goal of boosting overall growth. But growing discontent with the fallout of the global financial crisis has put inequality back on top of the policy agenda. While the symptoms may be different, tackling inequality is no less an issue in Asia.

Indeed, research shows that inequality can be counterproductive to sustaining longer-term growth. So, in increasingly turbulent global economic times, this gives added importance to promoting shared—or inclusive—growth in Asia that is more likely to be sustained.

This has been a major focus our latest Regional Economic Outlook, which we presented in Manila today. A great challenge for the government here, and for other countries across the region, is to raise living standards for a wide section of their populations. (more…)

Filed under: Asia, Economic outlook, growth, Inequality, International Monetary Fund, 日本語, 中文 | Tagged: , , , , , , , , , , , , , , , , | 1 Comment »

The Two Rebalancing Acts

Posted on October 6, 2010 by iMFdirect

By Olivier Blanchard

Achieving a “strong, balanced, and sustained world recovery”—to quote from the goal set in Pittsburgh by the G-20—was never going to be easy. It requires much more than just going back to business as usual. It requires two fundamental and complex economic rebalancing acts.

First, internal rebalancing. When private demand collapsed, fiscal stimulus helped reduce the fall in output. This helped avoid the worst. But private demand must now become strong enough to take the lead and sustain growth, while fiscal stimulus gives way to fiscal consolidation.

The second is external rebalancing. Many advanced countries, most notably the United States, relied excessively on domestic demand before the crisis, and they must now rely more on net exports. Many emerging market countries, most notably China, had relied excessively on net exports, but must now look to domestic demand. (more…)

Filed under: Advanced Economies, Economic Crisis, Emerging Markets, G-20, growth, Low-income countries, Multilateral Cooperation | Tagged: , , , , , , , , , , , , , , , | 10 Comments »

Financial System Fragilities – Achilles’ Heel of Economic Recovery

Posted on October 5, 2010 by iMFdirect

By José Viñals

It would be unfair for any assessment of global economic and financial stability not to acknowledge that tremendous progress has been made in repairing and strengthening the financial system since the onset of the global crisis.

Still, the key message from the IMF’s October 2010 Global Financial Stability Report (GFSR) is clear. Progress toward global financial stability has suffered a setback over the past six months—the financial system remains the Achilles’ heel of the economic recovery. (more…)

Filed under: Advanced Economies, Economic Crisis, Emerging Markets, Financial Crisis, Financial regulation, Financial sector supervision, International Monetary Fund | Tagged: , , , , , , , , , , , , | 2 Comments »

Toto, we’re not in Kansas anymore: Exploring the Contours of the Financial System After the Tornado

Posted on August 16, 2010 by iMFdirect

By Laura Kodres

Just as a tornado in Kansas transplanted Dorothy and, her dog, Toto, from familiar comforts to the unknown land of Oz, the global crisis has led many to wonder what has become of the global financial system and, more importantly, what will it look like next. Is the wicked witch of the West—excessive risk taking and leverage—really dead?

But now, as the storm subsides, there is time to speculate about what the future financial sector might look like. My IMF colleague, Aditya Narain, and I have done just that in a new Staff Position Note that attempts to discern the contours of this new financial landscape. What is clear is that the new landscape will be influenced by both the private and public sectors—their reactions to the crisis and to each other.

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Filed under: Advanced Economies, Economic Crisis, Emerging Markets, Financial Crisis, Financial regulation, Financial sector supervision, IMF, International Monetary Fund, Multilateral Cooperation | Tagged: , , , , , , , , , , , , , , , , , | 5 Comments »

A Marriage Made in Heaven or Hell: Monetary and Financial Stability

Posted on July 20, 2010 by iMFdirect

By José Viñals

Monetary stability seems almost a given today, even taken for granted. It wasn’t always like that. Not so long ago, high and volatile inflation routinely raised its ugly head and threatened living standards. Some of us even remember those days! It wasn’t pleasant. But since then, an effective antidote has pretty much wiped out rampant price instability. Over the past three decades, better monetary frameworks have caused the level and volatility of inflation to fall sharply. These frameworks enshrined price stability as the main monetary policy objective, and provided independence and constrained discretion in the pursuit of this objective, often set out through formal inflation targets.

As I said, it worked out well. Or did it? In reality, there was a gaping hole in the system. While monetary policy frameworks fortified the castle against inflation at the front, they didn’t pay much attention to back door vulnerabilities. I’m talking about financial stability.

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Filed under: Advanced Economies, Economic Crisis, Emerging Markets, Financial Crisis, Financial regulation, Fiscal Stimulus, IMF, International Monetary Fund | Tagged: , , , , , , , , , , , | 3 Comments »

Financial Reform: What Must Be Done

Posted on July 5, 2010 by iMFdirect

By José Viñals

Financial system reform has reached a critical point around the world. Pressure is building from the financial industry to slow reform and concerns about fiscal conditions risk drawing public and political energies away from the need to act on financial sector problems. Fortunately, the Group of Twenty (G-20) reaffirmed its commitment at a summit in Toronto on June 26-27 to a comprehensive reform agenda—and we must seize the moment.

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Filed under: Advanced Economies, Economic Crisis, Financial Crisis, Financial regulation, Globalization, IMF, International Monetary Fund, Multilateral Cooperation | Tagged: , , , , , , , | 5 Comments »

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