Emerging-Market Banks’ Government Debt Holdings Pose Financial Stability Risks
Banks’ holdings of sovereign debt rise to a record as governments spend to cushion pandemic impact.
Sharing the Recovery: SDR Channeling and a New Trust
Options to magnify the impact of the Special Drawing Rights Allocation through voluntary channeling.
Risky Business: Reading Credit Flows for Crisis Signals
By Claudio Raddatz Kiefer and Jérôme Vandenbussche
April 10, 2018
Versions in عربي (Arabic), 中文 (Chinese), Español (Spanish), Français (French), 日本語 (Japanese), Português (Portuguese), Русский (Russian)
The odds of a severe economic downturn are higher when a growing portion of credit flows to riskier firms, according to a new IMF study (Photo: Pali 137/ iStock by Getty Images).
Supervisors who monitor the health of the financial system know that a rapid buildup of debt during an economic boom can spell trouble down the road. That is why they keep a close eye on the overall volume of credit in the economy. When companies go on a borrowing spree, supervisors and regulators may decide to put the brakes on credit growth.
Trouble is, measuring credit volume overlooks an important question: how much of that additional money flows to riskier companies – which are more likely to default in times of trouble—compared with more creditworthy firms? The IMF’s latest Global Financial Stability Report seeks to fill that gap by constructing measures of the riskiness of […]
Sluggish Business Investment in the Euro Area: The Roles of Small and Medium Enterprises and Debt
By John C. Bluedorn and Christian Ebeke
Small businesses could be the lifeblood of Europe’s economy, but their size and high debt are two of the factors holding back the investment recovery in the euro area. The solution partly lies in policies to help firms grow and reduce debt.
Our new study, part of the IMF’s annual economic health check of the euro area, takes a novel bottom-up look at the problem. We analyze the drivers of investment using a large dataset of over six million observations in eight euro area countries, from 2003 to 2013: Austria, Belgium, Germany, France, Finland, Italy, Portugal, and Spain. […]
The Danger Zone: Financial Stability Risks Soar
We are back in the danger zone. Since our previous report, financial stability risks have increased substantially—reversing some of the progress that had been made over the previous three years.
Several shocks have recently buffeted the global financial system: unequivocal signs of a broader global economic slowdown; fresh market turbulence in the euro area; and the credit downgrade of the United States.
This has thrown us into a crisis of confidence driven by three main factors: weak growth, weak balance sheets, and weak politics.
A Balanced Debate About Reforming Macroeconomics
The most remarkable aspect of the recent conference at the IMF was the broad consensus that the macroeconomic models that had been relied upon in the past and had informed major aspects of monetary and macro-policy had failed. They failed to predict the crisis and they provided limited guidance on how the economy should respond.
There was also remarkable consensus about many elements of policy in responding to the crisis, and there were even large areas of policy consensus for the longer run.
In short, the conference made an important contribution in invigorating a balanced debate about reforming macroeconomics.
Is There a Silver Lining to Sluggish Credit Growth in the Gulf Countries?
Sluggish credit growth in the post-crisis period was hardly a unique development, as indicated in our latest Regional Economic Outlook for the Middle East and Central Asia region. But while there are clearer signs of recovery in some countries, credit to the private sector is still barely growing in the six nations of the Gulf Cooperation Council, notwithstanding policy efforts to revive it.
It might seem easy to ring the alarm bells. But there are a number of reasons why we are not as concerned about the slowdown in credit growth—among them that the adjustment reflects a much needed correction from very high—perhaps unsustainable—rates of credit growth witnessed during the boom years.