Posted on April 6, 2011 by iMFdirect
By Jeanne Gobat
The near collapse of the financial system that set off the global crisis was due in part to financial institutions suddenly lacking access to funding markets, and liquidity drying-up across securities markets.
Many financial institutions were unable to roll over or obtain short term funding without sustaining significant losses. This threatened to sink them.
Financial institutions did not factor in how their own responses to a liquidity shortfall could make the entire system shut down and less stable—that is, they underestimated their contribution to systemic liquidity risk in good times, and did not bear the cost of their actions on others in bad times.
It only takes a few institutions to pull the plug on a liquidity-filled bathtub before it runs dry, and the central bank needs to open the spigots again. (more…)
Filed under: Financial Crisis, Financial regulation, Financial sector supervision, International Monetary Fund | Tagged: Basel III, financial institutions, financial system, funding markets, global financial crisis, Global Financial Stability Report, liquidity conditions, liquidity risk, macroprudential policies, Microprudential regulations, regulatory reform, solvency risk, stress-testing, systemic liquidity risk | 1 Comment »
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: bank restructuring, banking system, capital inflows, debt sustainability, economic recovery, financial reform, Financial regulation, financial sector vulnerabilities, financial supervision, GFSR, Global Financial Stability Report, regulatory reform, sovereign risks | 2 Comments »
Posted on January 7, 2010 by iMFdirect
By John Lipsky
There is a broad consensus on at least one conclusion from the turmoil of the past few years: Fundamental changes are needed in the global financial sector.
Some of these changes seem relatively clear:
- Risk management of many financial firms needs strengthening
- Compensation schemes need to be re-evaluated
- Capital standards need to be bolstered
- Regulation needs fundamental reform
- Supervision needs to be improved
- And financial institutions’ balance sheets need to be freed of the burden of impaired assets.
Nonetheless, important tradeoffs will have to be addressed—and political hurdles surmounted—before significant progress can be achieved.
Filed under: Economic Crisis, Financial Crisis, Financial regulation, Global Governance, International Monetary Fund | Tagged: capital buffers, capital standards, financial sector reform, financial supervision, financial transactions tax, impaired assets, John Lipsky, regulatory reform, risk management, Tobin tax | 15 Comments »