Global Financial Stability Report, April 2012 · the Quest for Lasting Stability by Fund, International Monetary -- Read -- Imperial Library of Trantor

Index

Cover Page Title Page Copyright Page Contents Preface Executive Summary Chapter 1 Global Financial Stability Assessment

Status of Stability Indicators The Policy Challenges Annex 1.1. Why Is Deleveraging so Challenging? References

Chapter 2 Sovereigns, Banks, and Emerging Markets: Detailed Analysis and Policies

The Sovereign Debt Crisis—Shifting From a Bad to a Good Equilibrium Bank Deleveraging—Why, What, by How Much, and Where? Emerging Markets—Still Resilient? The Quest for Lasting Stability Annex 2.1. Methodology for the EU Bank Deleveraging Exercise Annex 2.2. Sovereign Risk in the United States, Japan, and Germany—Signals from the Markets Annex 2.3. Developments in U.S. Housing Markets Annex 2.4. The ECB’s LTROs: Keeping the Benefits and Avoiding the Pitfalls References

Chapter 3 Safe Assets: Financial system Cornerstone?

Summary The Safe Asset Universe Roles of Safe Assets for Various Participants The Supply of Safe Assets Financial Stability Implications Key Conclusions and Policy Implications Annex 3.1. Exposures to Common Risk Factors Annex 3.2. Central Bank Securities Policies since 2007 Annex 3.3. Collateral Requirements of Central Counterparties for Over-the-Counter Derivatives References

Chapter 4 The Financial Impact of Longevity Risk

Summary Longevity Risk The Impact of Longevity Risk Mitigating Longevity Risk Conclusions and Policy Considerations Annex 4.1. The Impact of Longevity Risk on U.S. Defined-Benefit Plans References

Glossary Annex: Summing Up by the Chair Statistical Appendix Boxes

1.1. Addressing the Euro Area Crisis and Moving Toward a More Integrated Union 2.1. What Explains the Performance of European Bank Equities? 2.2. European Banks’ Business Plans 2.3. A Comparison of the GFSR Approach with the European Banking Authority’s Bank Capital Strengthening Exercise 2.4. How Derivatives Markets Link U.S. Banks and European Counterparties 2.5. What Happens in Emerging Markets if Recent Bank and Portfolio Inflows Reverse? 2.6. Eurobonds and the Future of the Economic and Monetary Union 2.7. Update on Regulatory Reforms 3.1. The Size of Sovereign Wealth Funds and Their Role in Safe Asset Demand 3.2. The Impact of Changes in the OTC Derivatives Market on the Demand for Safe Assets 3.3. Regulatory Risk Weighting of Banks’ Government Debt Holdings: Potential Bias in Capital Adequacy Ratios 3.4. Impact of the Basel III Liquidity Coverage Ratio on the Demand for Safe Assets 3.5. The Impact of a Further Loss of Sovereign Debt Safety Illustrated in a Mean-Variance Framework 3.6. Conventional Monetary Policy and Its Demand for Safe Assets under Normal Conditions 4.1. The Evolution of Life Expectancy in the Twentieth and Twenty-First Centuries 4.2. Forecasting Longevity 4.3. An Example of a Longevity Shock 4.4. The Impact of Aging on the Macro Economy and on Financial Stability 4.5. Pension Reform in the Netherlands: Proactively Dealing with Longevity Risk 4.6. Recent Activity in the Dutch and U.K. Buy-Out, Buy-In, and Longevity Swap Markets

Tables

1.1. Indebtedness and Leverage in Selected Advanced Economies 1.2. Impact of European Bank Deleveraging under Three Policy Scenarios, through End-2013 1.3. Three Past Episodes of Household Deleveraging Associated with a Banking Crisis 2.1. Sovereign Debt: Market and Vulnerability Indicators 2.2. Share of Foreign Investors in Gross Refinancing Needs of Selected Euro Area Sovereigns under Three Policy Scenarios 2.3. Amount of Additional Funding from Domestic Investors Required by Selected Euro Area Sovereigns under Three Policy Scenarios, 2012 2.4. Capital Flow, Banking, and Policy Indicators in Selected Emerging and Other Markets 2.5. Selected Bank Balance Sheet Items 2.6. Weights Used in Calculation of the Net Stable Funding Ratio 2.7. Average Rollover Rates for Bank Funding under Three Policy Scenarios 2.8. Bank Deleveraging Strategy 3.1. Historical Overview of S&P Sovereign Debt Ratings of Selected OECD Countries, 1970–January 2012 3.2. Long-Term Senior Sovereign Debt Ratings and Implied Probabilities of Default 3.3. Demand and Supply Factors and Their Anticipated Impact on Safe Asset Markets 3.4. Top Five Financially Deep Worldwide Economies, as Share of Own GDP and of Global Financial Depth, 1989 and 2009 3.5. Central Bank Changes in Policies on Collateral and Purchases of Nongovernmental Securities since 2007 3.6. Collateral Requirements of the Big Three CCPs Handling OTC Derivatives 4.1. Pension Estimates and Population Estimates of Male Life Expectancy at Age 65 in Selected Advanced Economies 4.2. Longevity Risk and Fiscal Challenges in Selected Countries 4.3. Mortality Tables Used by Reporting Pension Plans 4.4. Corporate Pension Funding Ratios and Discount Rate Assumptions for Selected Countries 4.5. The Impact of Longevity Risk on Pension Liabilities

Figures

1.1. Global Financial Stability Map 1.2. Global Financial Stability Map: Assessment of Risks and Conditions 1.3. Central Bank Balance Sheet Expansion 1.4. Asset Price Performance since September 2011 GFSR 1.5. WEO Projections of 2012 GDP Growth in Selected Euro Area Countries 1.6. Policy Action to Entrench Stability and Avoid Downside Risks 1.7. External Positions and Gross Debt in Selected Euro Area Countries 1.8. Debt Burdens in Selected Advanced Economies, 2011 1.9. Household Net Financial Assets and Gross Debt, End-September 2011 1.10. Two Household Credit Cycles: 1980s and 2000s 2.1. Credit Default Swap Spreads in Selected Euro Area Government Bond Markets 2.2. Ten-Year Government Bond Yields and Trading Ranges, Selected Euro Area Countries, 2011–12 2.3. Daily Trading Volume of Italian Sovereign Bonds 2.4. Changes in the Sovereign Investor Base 2.5. Custodial Holdings of Selected Euro Area Sovereign Bonds, 2011 2.6. Cumulative Change in Foreign Bank Holdings of Sovereign Debt of Selected Euro Area Countries, 2010:Q1–2011:Q3 2.7. Returns and Volatility of U.S. and European Sovereign Bonds, 2011 2.8. Ten-Year Peripheral Euro Area Government Bond Spreads over AAA Core 2.9. ECB Purchases of Government Bonds under Its SMP 2.10. ECB Lending and Bank Holdings of Euro Area Sovereign Bonds, December 2011–January 2012 2.11. Yields on Government Bonds of Italy and Spain, November 2011 and March 2012 2.12. Projections for Government Debt and Average Interest Rate in Selected Advanced Economies, 2011–16 2.13. Scenarios for Ratio of Government Interest Expenditure to GDP, Selected Advanced Economies 2.14. Foreign Investor Share of Total Sovereign Debt, 2009–11, Selected Euro Area Economies 2.15. Bank Leverage 2.16. Bank Loan-to-Deposit Ratios 2.17. Bank Price-to-Tangible Book Value 2.18. Bank Five-Year Credit Default Swap Spreads 2.19. U.S. Prime Money Market Fund Exposures to Banks 2.20. Bank Debt Issuance 2.21. Cumulative Euro Area Deposit Flows, 2011–12 2.22. ECB Liquidity Facilities and Interbank Market Spreads 2.23. Credit Growth to the Nonfinancial Private Sector 2.24. Contributions to Euro Area Bank Lending Conditions for Companies 2.25. Change in Banks’ Foreign Private Sector Claims, 2011:Q3 2.26. Contributions to Reduction in Aggregate Bank Leverage Ratio, Current Policies Scenario 2.27. Contributions to Aggregate Reduction in Bank Assets, Three Policy Scenarios 2.28. Factor Contributions to Aggregate Reduction in Bank Assets, Three Policy Scenarios 2.29. Reduction in Supply of Credit by Sample Banks, Three Policy Scenarios 2.30. European Banks: Composition of Assets, 2010 2.31. Reduction in Supply of Credit, by Banking System, Current Policies Scenario 2.32. Euro Area Credit Supply Shock: Three Scenarios Relative to Historical Episodes 2.33. United States: Nonfinancial Corporate Borrowing and Return on Assets 2.34. Euro Area: Nonfinancial Corporate Borrowing and Return on Assets 2.35. Reliance on Bank Financing by Nonfinancial Corporations 2.36. Change in Nonfinancial Corporate Debt, 2000–10 2.37. Nonfinancial Corporations: Interest Coverage Ratio and Implied Ratings 2.38. Corporate Credit Quality in Western Europe, 2007–12 2.39. Euro Area Bank Deleveraging in Emerging Markets, 2008 and 2011 2.40. Deleveraging in Emerging Markets by Selected Advanced Economy and EM Local Banks, 2011:Q3 2.41. Emerging Market Credit Cycle for Euro Area Banks and Other Banks, 2010–11 2.42. Long-Term Specialty Finance in Emerging Markets 2.43. Emerging Europe: Cross-Border Bank Flows and Foreign Exchange Funding Costs 2.44. Reduction in Supply of Credit by Sample Banks to Emerging Europe: Current and Weak Policies Scenarios 2.45. Loans Denominated in Foreign Currency as a Share of GDP, Selected Countries in Emerging Europe, 2007 and 2011 2.46. Emerging Europe: Reserve Coverage of Short-Term External Debt, Selected Countries, 2007 and 2011 2.47. Emerging Europe: Sovereign Gross Financing Needs, Selected Countries, 2012 2.48. Net Flows in Emerging Market Funds, 2011–12 2.49. Performance of Emerging Market Assets, 2011–12 2.50. Changes in Residential Property Prices and Sales in China, 2011–12 2.51. Ratio of House Price to Annual Household Income for Selected Cities, 2011 2.52. China: Projected Nonperforming Loan Rates under Adverse Macroeconomic Scenarios 2.53. Annual Change in Private Credit, 2009–11 2.54. Capital Generation under Three Policy Scenarios 2.55. How Can Banks Improve Capital and Liquidity Ratios? 2.56. United States: Sovereign Market Indicators, March 2012 2.57. Germany: Sovereign Market Indicators, March 2012 2.58. Japan: Sovereign Market Indicators, March 2012 2.59. ECB LTROs and Bank Term Funding 2.60. Sovereign Bond Yields for Italy and Spain 3.1. Ten-Year Government Bond Yields in Selected Advanced Economies 3.2. Asset Exposures to Common Risk Factors before and after Global Crisis 3.3. Volatility of Excess Returns in Debt Instruments before and after Crisis 3.4. Outstanding Amounts of Marketable Potentially Safe Assets 3.5. Holdings of Government Securities Worldwide, by Investor Type, End-2010 3.6. Sovereign Debt Holdings, by Type and Location of Investor 3.7. Banks’ Holdings of Sovereign Debt, by Selected Country, End-September 2011 3.8. Official Reserve Accumulation, by Instrument 3.9. Government Securities Purchases and Holdings by Sectors 3.10. U.S. and U.K. Central Bank Holdings of Government Securities, by Remaining Maturity 3.11. Distribution of Selected Advanced and Emerging Market Economies, by Sovereign Debt Rating 3.12. OECD Countries: General Government Gross Debt Relative to GDP, End–2011 3.13. OECD Countries: General Government Gross Debt, 2010-16 3.14. Private-Label Term Securitization Issuance 3.15. Selected Advanced Economies: Changes in Central Bank Assets and Liabilities since the Global Crisis 3.16. Government Bond Holdings and Risk Spillovers between Sovereign and Banks 4.1. United Kingdom: Projected Life Expectancy at Birth, for Males, 1966-2031 4.2. Increases in Costs of Maintaining Retirement Living Standards due to Aging and to Longevity Shock 4.3. Life Expectancy at Age 63, by Year of Mortality Table 4.4. Increase in Actuarial Liabilities from Three-Year Increase in Longevity, by Discount Rate 4.5. Index of Share of Pension Entitlements Linked to Life Expectancy in Selected Countries 4.6. Structure of Pension Buy-Out and Buy-In Transactions 4.7. Structure of Longevity Swap Transactions 4.8. Structure of Longevity Bond Transactions 4.9. Attitudes of Pension Plan Sponsors toward Hedging Pension Risk, by Type of Risk 4.10. Attitudes of Potential Sellers of Longevity Risk toward Hedging

Footnotes

Chapter 1: Global Financial Stability Assessment Chapter 2: Sovereigns, Banks, and Emerging Markets: Detailed Analysis and Policies Chapter 3: Safe Assets-Financial System Cornerstone? Chapter 4: The Financial Impact Of Longevity Risk

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