Despite a global economic crisis comparable only to the Great Depression, near-term financial stability risks have been contained with the help of unprecedented monetary policy easing and massive fiscal support across the globe. […]
Much the same way COVID-19 hits people with pre-existing health conditions more strongly, so is the pandemic-triggered economic crisis exposing and worsening financial vulnerabilities that have built up during a decade of extremely low rates and volatility. […]
December 14, 2018
View of skyscrapers in the banking district in Frankfurt am Main, Germany: Progress has been made, but more needs to be done to strengthen the euro area’s banking union (photo: imageBROKER/Stefan Ziese/Newscom)
Dealing with problem banks in a prompt, efficient, and even-handed manner is essential for the European banking union. […]
The outlook for further interest-rate increases by the US Federal Reserve revives interest in a compelling question: In an increasingly integrated global financial system, how much control do countries outside of the US retain over their economic policies?
By Deniz Igan
Michael Mussa, a former Chief Economist of the IMF, famously likened capital account liberalization to fire. In his comments at the IMF Economic Forum on October 2, 1998, he said: “Fire warms our homes, it cooks our food, our internal combustion engines,” and continued: “No doubt, fire is very useful, and we are not going to give up its manifold benefits. On the other hand, fire can also burn you down and do a great deal of damage.”
“The Great Distortion.” That’s what The Economist, in its cover story of May 2015¸ called the systematic tax advantage of debt over equity that is found in almost every tax system.
This “debt bias” is now widely recognized as a real risk to economic stability. A new IMF study argues that it needs to feature more prominently on tax reform agendas; it also sets out options for how to do that.
Banks are struggling to overhaul the way they do business given new realities and new regulations adopted in the aftermath of the global financial crisis. While banks are generally stronger—they have more capital—they are less profitable, as measured by the return on equity. There are a number of reasons behind this, including: anemic net income at banks, particularly in the euro area; higher levels of equity; and banks taking fewer risks.
If they cannot change their business models, there is a risk that banks will not be able to provide enough credit to help the economy grow and recover.