Global Financial Stability Report

Containing Systemic Risks and
Restoring Financial Soundness
April 2008

©2008 International Monetary Fund
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The Global Financial Stability Report provides semiannual assessments of global financial markets and addresses emerging market financing in a global context.*

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Contents

Preface(90KB pdf file)
Executive Summary(90KB pdf file)
Chapter I. Assessing Risks to Global Financial Stability
Full Text | Boxes | Figures | Tables
	Global Financial Stability Map
	Credit Deterioration -- How Deep and Widespread?
	Systemic Risks Have Risen Sharply
	Will Emerging Markets Remain Resilient?
	Credit Squeeze or Credit Crunch?
	Immediate Policy Challenges
	Annex 1.1. Global Financial Stability Map: Construction and Methodology
	Annex 1.2. Methodology for Calculating Global Losses and Bank Exposures
	References
Chapter II. Structured Finance: Issues of Valuation and Disclosure
Full Text | Summary | Boxes | Figures
	Valuation and Disclosure of Complex Structured Finance Products
	The Role of Off-Balance-Sheet Entities
	Conclusions and Outlook
	Annex 2.1. The World According to GAAP
	References
Chapter III. Market and Funding Illiquidity: When Private Risk Becomes Public
Full Text | Summary | Figures
	The Nature of Market Liquidity Risks
	Funding Liquidity Risks
	Market and Funding Liquidity Dynamics
	Liquidity Dynamics Since July 2007: An Empirical Investigation
	The Role of Central Banks During Periods of Market and Funding Illiquidity
	Central Banks' Response to Liquidity Strains Since July 2007: An Empirical Investigation
	Recommendations to Enhance Liquidity Risk Management
	Conclusion
	Annex 3.1. Liquidity Dynamics Since Summer 2007
	References
Glossary (270KB pdf file)
Annex: Summing Up by the Acting Chair
Statistical Appendix(1,331KB pdf file)
Key Financial Centers: Figures | Tables
Emerging Markets: Figures | Tables
Financial Soundness Indicators: Tables
Boxes
Chart Chart Chart Chart	Data Data Data Data	1.1	Outlook for U.S. High-Yield Corporate Debt Markets and Default Rates
Chart	Data	1.2	Do Sovereign Wealth Funds Have a Volatility-Absorbing Market Impact?
Chart	Data	1.3	The Rise in Balance Sheet Leverage of Global Banks
		1.4	Quantitative Financial Stability Modeling
Chart Chart Chart	Data Data Data	1.5	Banking Stability Index
Chart	Data	2.1	Structured Finance: What Is It and How Did It Get So Large?
		2.2	When Is a AAA not a AAA? (Part 1: The ABCs of MBSs and CDOs)
Chart Chart	Data Data	2.3	When Is a AAA not a AAA? (Part 2: Actual versus Market-Implied Mortgage-Backed Security Ratings)
Chart Chart	Data Data	2.4	When Is a AAA not a AAA? (Part 3: Collateralized Debt Obligation Rating Dynamics)
Chart	Data	2.5	Conduits, SIVs and SIV-Lites
Chart	Data	2.6	Consolidation of Structured Investment Vehicles: An Illustrative Example of Issues That Arise
		3.1	The Determinants of Market Liquidity
		3.2	Liquidity-Adjusted Value-at-Risk: At the Forefront of Market Liquidity Risk Management?
		3.3	Standard Ways to Measure and Control Bank Liquidity Risks
		3.4	Institute of International Finance Principles of Liquidity Risk Management
		3.5	Central Bank Counterparties
		3.6	Liquidity Regulation and the Basel Process
Tables
Chart	Data	1.1	Estimates of Financial Sector Potential Losses as of March 2008
Chart	Data	1.2	Typical "Haircut" or Initial Margin
Chart	Data	1.3	Macro and Financial Indicators in Selected Emerging Market Countries
		1.4	Changes in Risks and Conditions Since the October 2007 Global Financial Stability Report
Chart	Data	1.5	Losses by Asset Class as of March 2008
Chart	Data	1.6	Global Bank Losses as of March 2008
		2.1	Accounting for Securities Held as Financial Assets
		2.2	U.S. Subprime Exposures and Losses
		2.3	Market Participants in Credit Derivatives, 2004 and 2006
		3.1	Impact of Central Bank Interventions on LIBOR-OIS Spreads
Figures
Chart	Data	1.1	Global Financial Stability Map
Chart	Data	1.2	Mortgage Delinquencies by Vintage Year
Chart	Data	1.3	U.S. Mortgage-Related Securities Prices
Chart	Data	1.4	U.S. and European House Price Changes
Chart	Data	1.5	U.S. and UK Nonconforming Delinquencies by Mortgage Vintage Year
Chart	Data	1.6	Commercial Mortgage Borrowing and Real Estate Prices
Chart	Data	1.7	CMBX Spreads
Chart	Data	1.8	Charge-Off Rates for U.S. Consumer Loans
Chart	Data	1.9	Credit Card Charge-Off Rates versus Credit Card Asset-Backed Spreads on Securities
Chart	Data	1.10	LCDX Prices and Spreads
Chart	Data	1.11	U.S. Leveraged Buyout Loans: Credit Quality Indicators
Chart	Data	1.12	Comparison of Financial Crises
Chart	Data	1.13	Expected Bank Losses as of March 2008
Chart	Data	1.14	Financial Guarantors
Chart	Data	1.15	Systemic Bank Default Risk
Chart	Data	1.16	Securitization Volume in the European Union (EU-15)
Chart	Data	1.17	Bank Equity Price Changes and Balance Sheet Leverage
Chart	Data	1.18	U.S. Funding Market Liquidity
Chart	Data	1.19	Euro Area Funding Market Liquidity
Chart	Data	1.20	Decomposing Interbank Spreads
Chart	Data	1.21	External Position of Emerging Markets by Region vis-à-vis BIS Reporting Banks
Chart	Data	1.22	Selected European Banks: Dependence on Wholesale Funding as of March 2008
Chart	Data	1.23	Central and Eastern Europe: Growth in Private Credit and House Prices, 2002-06
Chart	Data	1.24	Baltic States, Bulgaria, and Romania: Credit to Households by Type
Chart	Data	1.25	Baltic States' 5-Year Credit Default Swap Spreads and Romanian Leu
Chart	Data	1.26	Emerging Markets: Private Sector External Bond Issuance
Chart	Data	1.27	Carry-Trade Index and Currency Volatility
Chart	Data	1.28	Heat Map: Developments in Systemic Asset Classes
Chart	Data	1.29	Spreads Across Credit: Historical Highs, Lows, and Current Levels
Chart	Data	1.30	U.S. Private Sector Net Debt Issuance by Sector
Chart	Data	1.31	G-3 Bank Lending Conditions
Chart	Data	1.32	U.S. Private Sector Borrowing
Chart	Data	1.33	Impulse Response of U.S. GDP to Credit Shocks
Chart	Data Data Data Data Data	1.34	Global Financial Stability Map: Monetary and Financial Conditions
Chart	Data Data Data Data	1.35	Global Financial Stability Map: Risk Appetite Conditions
Chart	Data Data Data Data Data	1.36	Global Financial Stability Map: Macroeconomic Risks
Chart	Data Data Data Data Data	1.37	Global Financial Stability Map: Emerging Market Risks
Chart	Data Data Data Data Data	1.38	Global Financial Stability Map: Credit Risks
Chart	Data Data Data Data Data Data	1.39	Global Financial Stability Map: Market and Liquidity Risks
Chart	Data	2.1	Selected U.S.-Based Financial Institutions: Change in Level 3 and 2 Assets
		2.2	Writedowns of Selected Financial Institutions: October 15, 2007-February 14, 2008
		2.3	Timelines for Implementation of Basel II Framework
Chart	Data	2.4	Market Participants in Credit Derivatives, 2006
Chart	Data	2.5	Structured Credit Products by Market Participants
Chart	Data	2.6	Financial Guaranty Industry Insured Portfolio Distribution, 2006
Chart	Data	3.1	Commercial Banks: Deposit-to-Asset Ratios
Chart	Data	3.2	Aggregate Bank Credit Default Swap Rate and Selected Spreads
Chart	Data	3.3	United States: Selected Money Market Spreads
Chart	Data	3.4	United States: S&P 500 Stock Market Returns and Aggregate Credit Default Swap Rate
Chart	Data	3.5	On-the-Run/Off-the-Run Five-Year U.S. Treasury Note Spread
Chart	Data	3.6	U.S. Model: Selected Implied Correlations from Dynamic Conditional Correlation GARCH Specification
Chart	Data	3.7	Advanced Economies Model: Selected Implied Correlations from Dynamic Conditional Correlation GARCH Specification
Chart	Data	3.8	Three-Month LIBOR to Overnight Index Swap Spreads
Chart	Data	3.9	Central Bank Key Policy and Overnight Money Market Rates
Chart	Data	3.10	European Central Bank's Liquidity Provision and Reserve Holdings
Chart	Data	3.11	Euro Area: Selected European Central Bank Policy Actions and Term Funding Stress
Chart	Data	3.12	United States: Selected Federal Reserve Policy Actions and Term Funding Stress
Chart	Data	3.13	U.S. Model: Implied Correlations from Dynamic Conditional Correlation GARCH Specification
Chart	Data	3.14	Advanced Economies Model: Implied Correlations from Dynamic Conditional Correlation GARCH Specification
Chart	Data	3.15	Emerging Markets Model: Implied Correlations from Dynamic Conditional Correlation GARCH Specification
Statistical Appendix
Key Financial Centers
Figures
Chart	Data	1.	Major Net Exporters and Importers of Capital in 2007
Chart	Data	2.	Exchange Rates: Selected Major Industrial Countries
Chart	Data	3.	United States: Yields on Corporate and Treasury Bonds
Chart	Data	4.	Selected Spreads
Chart	Data	5.	Nonfinancial Corporate Credit Spreads
Chart	Data	6.	Equity Markets: Price Indexes
Chart	Data	7.	Implied and Historical Volatility in Equity Markets
Chart	Data	8.	Historical Volatility of Government Bond Yields and Bond Returns for Selected Countries
Chart	Data	9.	Twelve-Month Forward Price/Earnings Ratios
Chart	Data	10.	Flows into U.S.-Based Equity Funds
Chart	Data	11.	United States: Corporate Bond Market
Chart	Data	12.	Europe: Corporate Bond Market
Chart	Data	13.	United States: Commercial Paper Market
Chart	Data	14.	United States: Asset-Backed Securities
Tables
	Data	1.	Global Capital Flows: Inflows and Outflows
	Data	2.	Global Capital Flows: Amounts Outstanding and Net Issues of International Debt Securities by Currency of Issue and Announced International Syndicated Credit Facilities by Nationality of Borrower
	Data	3.	Selected Indicators on the Size of the Capital Markets, 2006
	Data	4.	Global Over-the-Counter Derivatives Markets: Notional Amounts and Gross Market Values of Outstanding Contracts
	Data	5.	Global Over-the-Counter Derivatives Markets: Notional Amounts and Gross Market Values of Outstanding Contracts by Counterparty, Remaining Maturity, and Currency
	Data	6.	Exchange-Traded Derivative Financial Instruments: Notional Principal Amounts Outstanding and Annual Turnover
	Data	7.	United States: Sectoral Balance Sheets
	Data	8.	Japan: Sectoral Balance Sheets
	Data	9.	Europe: Sectoral Balance Sheets
Emerging Markets
Figures
Chart	Data	15.	Emerging Market Volatility Measures
Chart	Data	16.	Emerging Market Debt Cross-Correlation Measures
Tables
	Data	10.	Equity Market Indices
	Data	11.	Foreign Exchange Rates
	Data	12.	Emerging Market Bond Index: EMBI Global Total Returns Index
	Data	13.	Emerging Market Bond Index: EMBI Global Yield Spreads
	Data	14.	Emerging Market External Financing: Total Bonds, Equities, and Loans
	Data	15.	Emerging Market External Financing: Bond Issuance
	Data	16.	Emerging Market External Financing: Equity Issuance
	Data	17.	Emerging Market External Financing: Loan Syndication
	Data	18.	Equity Valuation Measures: Dividend-Yield Ratios
	Data	19.	Equity Valuation Measures: Price-to-Book Ratios
	Data	20.	Equity Valuation Measures: Price/Earnings Ratios
	Data	21.	United States: Mutual Fund Flows
Financial Soundness Indicators
Tables
	Data	22.	Bank Regulatory Capital to Risk-Weighted Assets
	Data	23.	Bank Capital to Assets
	Data	24.	Bank Nonperforming Loans to Total Loans
	Data	25.	Bank Provisions to Nonperforming Loans
	Data	26.	Bank Return on Assets
	Data	27.	Bank Return on Equity