A stock in excess of €900 billion of nonperforming loans continue to clutter the European banking system, impeding economic growth. This issue remains a key challenge for policy makers. As we show in our latest Global Financial Stability Report, part of the solution to address this legacy is an upgrade in legal systems. Current inefficiencies—long foreclosure times and insolvency procedures—are a reason for the gap between the value of loans on bank balance sheets and the price investors are willing to pay. A reliable legal environment and an efficient judicial system maximize the value of nonperforming loans (NPLs), reduce the value gap and give banks greater incentive to get NPLs off the books. Our analysis, using time to foreclose as a proxy for effective insolvency regimes, shows there is a large upside for new lending capacity in the euro area (Chart 1).
By IMFdirect editors
Socrates’ famous method to develop his students’ intellect was to question them relentlessly in an unending search for contradictions and the truth—or at the very least, a great quote.
The method was alive and well among the moderators, panelists and audiences of the IMF’s Spring Meetings seminars that took place alongside official discussions, where boosting high-quality growth, with a focus on the medium term, was at the top of the agenda. Our editors fanned out and found a couple of big themes kept coming up. Here are some of the highlights.
Lots of people are talking about what happens when the flood of easy money into emerging markets thanks to low interest rates in advanced economies like the United States slows even more than it has in the past year.
At a seminar on fiscal policy the discussion focused on the challenges facing policymakers as central banks slowly exit from unconventional monetary policy and interest rates begin rising.
A live poll of the audience found 63 percent said the global economy remains weak and unconventional monetary policies should remain in place.
Even before the latest euro area GDP numbers and Italian elections cast a shadow over the continent, economists were struggling to reconcile the steady improvement in market sentiment with the more downbeat data on the economy, production, orders, and jobs. This video looks at this puzzle from a somewhat different perspective than the usual— we examine the role of household and corporate balance sheets in the countries under financial market stress and the implications for policy priorities.
The latest update of the Global Financial Stability Report says financial stability risks have increased, because of escalating funding and market pressures and a weak growth outlook. Now is the moment for strong political leadership, because tough decisions will need to be made to restore confidence and ensure lasting financial stability in both advanced and emerging economies. It is time for action.
The quest for lasting financial stability is still fraught with risks. The latest Global Financial Stability Report has two key messages: policy actions have brought gains to global financial stability since our September report; but current policy efforts are not enough to achieve lasting stability, both in Europe and some other advanced economies, in particular the United States and Japan.
The three Baltic states—Estonia, Latvia and Lithuania—were among the first victims of the global financial crisis. Although adjustment is still far from complete, a recovery is now underway. It is still too early to judge the success of the Baltic strategy, but it's fair to say that the most dire predictions have not come true.