The END: A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability

The END: A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability

Author: Toni Gravelle

Publisher: INTERNATIONAL MONETARY FUND

Published: 2005-12-01

Total Pages: 17

ISBN-13: 9781451862508

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This paper describes a corporate sector vulnerability indicator, the expected number of defaults (END), based on the joint occurrence of defaults among a number of firms and/or institutions. The END indicator is general enough to assess systemic risk in the corporate and financial sectors, as well as systemic sovereign risk; and is also forward looking as it is constructed using information implied by financial securities prices. Using equity prices and balance-sheet data, we calculate the END to assess systemic risk in the corporate sector in Korea, Malaysia, and Thailand. We also discuss how the END systemic risk indicator overcomes some of the shortcomings of other vulnerability indicators.


Book Synopsis The END: A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability by : Toni Gravelle

Download or read book The END: A New Indicator of Financial and Nonfinancial Corporate Sector Vulnerability written by Toni Gravelle and published by INTERNATIONAL MONETARY FUND. This book was released on 2005-12-01 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper describes a corporate sector vulnerability indicator, the expected number of defaults (END), based on the joint occurrence of defaults among a number of firms and/or institutions. The END indicator is general enough to assess systemic risk in the corporate and financial sectors, as well as systemic sovereign risk; and is also forward looking as it is constructed using information implied by financial securities prices. Using equity prices and balance-sheet data, we calculate the END to assess systemic risk in the corporate sector in Korea, Malaysia, and Thailand. We also discuss how the END systemic risk indicator overcomes some of the shortcomings of other vulnerability indicators.

The Riskiness of Credit Allocation and Financial Stability

The Riskiness of Credit Allocation and Financial Stability

Author: Mr.Luis Brandao-Marques

Publisher: International Monetary Fund

Published: 2019-09-27

Total Pages: 39

ISBN-13: 151351377X

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We explore empirically how the time-varying allocation of credit across firms with heterogeneous credit quality matters for financial stability outcomes. Using firm-level data for 55 countries over 1991-2016, we show that the riskiness of credit allocation, captured by Greenwood and Hanson (2013)’s ISS indicator, helps predict downside risks to GDP growth and systemic banking crises, two to three years ahead. Our analysis indicates that the riskiness of credit allocation is both a measure of corporate vulnerability and of investor sentiment. Economic forecasters wrongly predict a positive association between the riskiness of credit allocation and future growth, suggesting a flawed expectations process.


Book Synopsis The Riskiness of Credit Allocation and Financial Stability by : Mr.Luis Brandao-Marques

Download or read book The Riskiness of Credit Allocation and Financial Stability written by Mr.Luis Brandao-Marques and published by International Monetary Fund. This book was released on 2019-09-27 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore empirically how the time-varying allocation of credit across firms with heterogeneous credit quality matters for financial stability outcomes. Using firm-level data for 55 countries over 1991-2016, we show that the riskiness of credit allocation, captured by Greenwood and Hanson (2013)’s ISS indicator, helps predict downside risks to GDP growth and systemic banking crises, two to three years ahead. Our analysis indicates that the riskiness of credit allocation is both a measure of corporate vulnerability and of investor sentiment. Economic forecasters wrongly predict a positive association between the riskiness of credit allocation and future growth, suggesting a flawed expectations process.

Global Financial Stability Report, October 2019

Global Financial Stability Report, October 2019

Author: International Monetary Fund. Monetary and Capital Markets Department

Publisher: International Monetary Fund

Published: 2019-10-16

Total Pages: 109

ISBN-13: 1498324029

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The October 2019 Global Financial Stability Report (GFSR) identifies the current key vulnerabilities in the global financial system as the rise in corporate debt burdens, increasing holdings of riskier and more illiquid assets by institutional investors, and growing reliance on external borrowing by emerging and frontier market economies. The report proposes that policymakers mitigate these risks through stricter supervisory and macroprudential oversight of firms, strengthened oversight and disclosure for institutional investors, and the implementation of prudent sovereign debt management practices and frameworks for emerging and frontier market economies.


Book Synopsis Global Financial Stability Report, October 2019 by : International Monetary Fund. Monetary and Capital Markets Department

Download or read book Global Financial Stability Report, October 2019 written by International Monetary Fund. Monetary and Capital Markets Department and published by International Monetary Fund. This book was released on 2019-10-16 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: The October 2019 Global Financial Stability Report (GFSR) identifies the current key vulnerabilities in the global financial system as the rise in corporate debt burdens, increasing holdings of riskier and more illiquid assets by institutional investors, and growing reliance on external borrowing by emerging and frontier market economies. The report proposes that policymakers mitigate these risks through stricter supervisory and macroprudential oversight of firms, strengthened oversight and disclosure for institutional investors, and the implementation of prudent sovereign debt management practices and frameworks for emerging and frontier market economies.

Global Corporate Stress Tests—Impact of the COVID-19 Pandemic and Policy Responses

Global Corporate Stress Tests—Impact of the COVID-19 Pandemic and Policy Responses

Author: Mr. Thierry Tressel

Publisher: International Monetary Fund

Published: 2021-08-06

Total Pages: 54

ISBN-13: 1513590820

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Corporate sector vulnerabilities have been a central policy topic since the outset of the COVID-19 pandemic. In this paper, we analyze some 17,000 publicly listed firms in a sample of 24 countries, and assess their ability to withstand shocks induced by the pandemic to their liquidity, viability and solvency. For this purpose, we develop novel multi-factor sensitivity analysis and dynamic scenario-based stress test techniques to assess the impact of shocks on firm’s ability to service their debt, and on their liquidity and solvency positions. Applying the October 2020 WEO baseline and adverse scenarios, we find that a large share of publicly-listed firms become vulnerable as a result of the pandemic shock and additional borrowing needs to overcome cash shortfalls are large, while firm behavioral responses and policies substantially help overcome the impact of the shock in the near term. Looking forward, while interest coverage ratios tend to improve over time after the initial shock as earnings recover in line with projected macroeconomic conditions, liquidity needs remain substantial in many firms across countries and across industries, while insolvencies rise over time in specific industries. To inform policy debates, we offer an approach to a triage between viable and unviable firms, and find that the needs for liquidity support of viable firms remain important beyond 2020, and that medium-term debt restructuring needs and liquidations of firms may be substantial in the medium-term.


Book Synopsis Global Corporate Stress Tests—Impact of the COVID-19 Pandemic and Policy Responses by : Mr. Thierry Tressel

Download or read book Global Corporate Stress Tests—Impact of the COVID-19 Pandemic and Policy Responses written by Mr. Thierry Tressel and published by International Monetary Fund. This book was released on 2021-08-06 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: Corporate sector vulnerabilities have been a central policy topic since the outset of the COVID-19 pandemic. In this paper, we analyze some 17,000 publicly listed firms in a sample of 24 countries, and assess their ability to withstand shocks induced by the pandemic to their liquidity, viability and solvency. For this purpose, we develop novel multi-factor sensitivity analysis and dynamic scenario-based stress test techniques to assess the impact of shocks on firm’s ability to service their debt, and on their liquidity and solvency positions. Applying the October 2020 WEO baseline and adverse scenarios, we find that a large share of publicly-listed firms become vulnerable as a result of the pandemic shock and additional borrowing needs to overcome cash shortfalls are large, while firm behavioral responses and policies substantially help overcome the impact of the shock in the near term. Looking forward, while interest coverage ratios tend to improve over time after the initial shock as earnings recover in line with projected macroeconomic conditions, liquidity needs remain substantial in many firms across countries and across industries, while insolvencies rise over time in specific industries. To inform policy debates, we offer an approach to a triage between viable and unviable firms, and find that the needs for liquidity support of viable firms remain important beyond 2020, and that medium-term debt restructuring needs and liquidations of firms may be substantial in the medium-term.

Global Financial Stability Report, April 2018

Global Financial Stability Report, April 2018

Author: International Monetary Fund. Monetary and Capital Markets Department

Publisher: International Monetary Fund

Published: 2018-04-18

Total Pages: 152

ISBN-13: 1484338294

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The April 2018 Global Financial Stability Report (GFSR) finds that short-term risks to financial stability have increased somewhat since the previous GFSR. Medium-term risks are still elevated as financial vulnerabilities, which have built up during the years of accommodative policies, could mean a bumpy road ahead and put growth at risk. This GFSR also examines the short- and medium-term implications for downside risks to growth and financial stability of the riskiness of corporate credit allocation. It documents the cyclical nature of the riskiness of corporate credit allocation at the global and country levels and its sensitivity to financial conditions, lending standards, and policy and institutional settings. Another chapter analyzes whether and how house prices move in tandem across countries and major cities around the world—that is, global house price synchronicity.


Book Synopsis Global Financial Stability Report, April 2018 by : International Monetary Fund. Monetary and Capital Markets Department

Download or read book Global Financial Stability Report, April 2018 written by International Monetary Fund. Monetary and Capital Markets Department and published by International Monetary Fund. This book was released on 2018-04-18 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt: The April 2018 Global Financial Stability Report (GFSR) finds that short-term risks to financial stability have increased somewhat since the previous GFSR. Medium-term risks are still elevated as financial vulnerabilities, which have built up during the years of accommodative policies, could mean a bumpy road ahead and put growth at risk. This GFSR also examines the short- and medium-term implications for downside risks to growth and financial stability of the riskiness of corporate credit allocation. It documents the cyclical nature of the riskiness of corporate credit allocation at the global and country levels and its sensitivity to financial conditions, lending standards, and policy and institutional settings. Another chapter analyzes whether and how house prices move in tandem across countries and major cities around the world—that is, global house price synchronicity.

Global Financial Stability Report, April 2021

Global Financial Stability Report, April 2021

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 2021-04-06

Total Pages: 92

ISBN-13: 1513569678

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Extraordinary policy measures have eased financial conditions and supported the economy, helping to contain financial stability risks. Chapter 1 warns that there is a pressing need to act to avoid a legacy of vulnerabilities while avoiding a broad tightening of financial conditions. Actions taken during the pandemic may have unintended consequences such as stretched valuations and rising financial vulnerabilities. The recovery is also expected to be asynchronous and divergent between advanced and emerging market economies. Given large external financing needs, several emerging markets face challenges, especially if a persistent rise in US rates brings about a repricing of risk and tighter financial conditions. The corporate sector in many countries is emerging from the pandemic overindebted, with notable differences depending on firm size and sector. Concerns about the credit quality of hard-hit borrowers and profitability are likely to weigh on the risk appetite of banks. Chapter 2 studies leverage in the nonfinancial private sector before and during the COVID-19 crisis, pointing out that policymakers face a trade-off between boosting growth in the short term by facilitating an easing of financial conditions and containing future downside risks. This trade-off may be amplified by the existing high and rapidly building leverage, increasing downside risks to future growth. The appropriate timing for deployment of macroprudential tools should be country-specific, depending on the pace of recovery, vulnerabilities, and policy tools available. Chapter 3 turns to the impact of the COVID-19 crisis on the commercial real estate sector. While there is little evidence of large price misalignments at the onset of the pandemic, signs of overvaluation have now emerged in some economies. Misalignments in commercial real estate prices, especially if they interact with other vulnerabilities, increase downside risks to future growth due to the possibility of sharp price corrections.


Book Synopsis Global Financial Stability Report, April 2021 by : International Monetary Fund

Download or read book Global Financial Stability Report, April 2021 written by International Monetary Fund and published by International Monetary Fund. This book was released on 2021-04-06 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: Extraordinary policy measures have eased financial conditions and supported the economy, helping to contain financial stability risks. Chapter 1 warns that there is a pressing need to act to avoid a legacy of vulnerabilities while avoiding a broad tightening of financial conditions. Actions taken during the pandemic may have unintended consequences such as stretched valuations and rising financial vulnerabilities. The recovery is also expected to be asynchronous and divergent between advanced and emerging market economies. Given large external financing needs, several emerging markets face challenges, especially if a persistent rise in US rates brings about a repricing of risk and tighter financial conditions. The corporate sector in many countries is emerging from the pandemic overindebted, with notable differences depending on firm size and sector. Concerns about the credit quality of hard-hit borrowers and profitability are likely to weigh on the risk appetite of banks. Chapter 2 studies leverage in the nonfinancial private sector before and during the COVID-19 crisis, pointing out that policymakers face a trade-off between boosting growth in the short term by facilitating an easing of financial conditions and containing future downside risks. This trade-off may be amplified by the existing high and rapidly building leverage, increasing downside risks to future growth. The appropriate timing for deployment of macroprudential tools should be country-specific, depending on the pace of recovery, vulnerabilities, and policy tools available. Chapter 3 turns to the impact of the COVID-19 crisis on the commercial real estate sector. While there is little evidence of large price misalignments at the onset of the pandemic, signs of overvaluation have now emerged in some economies. Misalignments in commercial real estate prices, especially if they interact with other vulnerabilities, increase downside risks to future growth due to the possibility of sharp price corrections.

Financial Soundness Indicators

Financial Soundness Indicators

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 2006-04-04

Total Pages: 302

ISBN-13: 1589063856

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Financial Soundness Indicators (FSIs) are measures that indicate the current financial health and soundness of a country's financial institutions, and their corporate and household counterparts. FSIs include both aggregated individual institution data and indicators that are representative of the markets in which the financial institutions operate. FSIs are calculated and disseminated for the purpose of supporting macroprudential analysis--the assessment and surveillance of the strengths and vulnerabilities of financial systems--with a view to strengthening financial stability and limiting the likelihood of financial crises. Financial Soundness Indicators: Compilation Guide is intended to give guidance on the concepts, sources, and compilation and dissemination techniques underlying FSIs; to encourage the use and cross-country comparison of these data; and, thereby, to support national and international surveillance of financial systems.


Book Synopsis Financial Soundness Indicators by : International Monetary Fund

Download or read book Financial Soundness Indicators written by International Monetary Fund and published by International Monetary Fund. This book was released on 2006-04-04 with total page 302 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Soundness Indicators (FSIs) are measures that indicate the current financial health and soundness of a country's financial institutions, and their corporate and household counterparts. FSIs include both aggregated individual institution data and indicators that are representative of the markets in which the financial institutions operate. FSIs are calculated and disseminated for the purpose of supporting macroprudential analysis--the assessment and surveillance of the strengths and vulnerabilities of financial systems--with a view to strengthening financial stability and limiting the likelihood of financial crises. Financial Soundness Indicators: Compilation Guide is intended to give guidance on the concepts, sources, and compilation and dissemination techniques underlying FSIs; to encourage the use and cross-country comparison of these data; and, thereby, to support national and international surveillance of financial systems.

Global Financial Stability Report, October 2017

Global Financial Stability Report, October 2017

Author: International Monetary Fund. Monetary and Financial Systems Dept.

Publisher: International Monetary Fund

Published: 2017-10-11

Total Pages: 139

ISBN-13: 1484308395

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The October 2017 Global Financial Stability Report finds that the global financial system continues to strengthen in response to extraordinary policy support, regulatory enhancements, and the cyclical upturn in growth. It also includes a chapter that examines the short- and medium-term implications for economic growth and financial stability of the past decades’ rise in household debt. It documents large differences in household debt-to-GDP ratios across countries but a common increasing trajectory that was moderated but not reversed by the global financial crisis. Another chapter develops a new macroeconomic measure of financial stability by linking financial conditions to the probability distribution of future GDP growth and applies it to a set of 20 major advanced and emerging market economies. The chapter shows that changes in financial conditions shift the whole distribution of future GDP growth.


Book Synopsis Global Financial Stability Report, October 2017 by : International Monetary Fund. Monetary and Financial Systems Dept.

Download or read book Global Financial Stability Report, October 2017 written by International Monetary Fund. Monetary and Financial Systems Dept. and published by International Monetary Fund. This book was released on 2017-10-11 with total page 139 pages. Available in PDF, EPUB and Kindle. Book excerpt: The October 2017 Global Financial Stability Report finds that the global financial system continues to strengthen in response to extraordinary policy support, regulatory enhancements, and the cyclical upturn in growth. It also includes a chapter that examines the short- and medium-term implications for economic growth and financial stability of the past decades’ rise in household debt. It documents large differences in household debt-to-GDP ratios across countries but a common increasing trajectory that was moderated but not reversed by the global financial crisis. Another chapter develops a new macroeconomic measure of financial stability by linking financial conditions to the probability distribution of future GDP growth and applies it to a set of 20 major advanced and emerging market economies. The chapter shows that changes in financial conditions shift the whole distribution of future GDP growth.

Financial Sector Crisis and Restructuring

Financial Sector Crisis and Restructuring

Author: Carl-Johan Lindgren

Publisher:

Published: 1999

Total Pages: 103

ISBN-13: 9781557758712

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An IMF paper reviewing the policy responses of Indonesia, Korea and Thailand to the 1997 Asian crisis, comparing the actions of these three countries with those of Malaysia and the Philippines. Although all judgements are still tentative, important lessons can be learned from the experiences of the last two years.


Book Synopsis Financial Sector Crisis and Restructuring by : Carl-Johan Lindgren

Download or read book Financial Sector Crisis and Restructuring written by Carl-Johan Lindgren and published by . This book was released on 1999 with total page 103 pages. Available in PDF, EPUB and Kindle. Book excerpt: An IMF paper reviewing the policy responses of Indonesia, Korea and Thailand to the 1997 Asian crisis, comparing the actions of these three countries with those of Malaysia and the Philippines. Although all judgements are still tentative, important lessons can be learned from the experiences of the last two years.

Financial Soundness Indicators for Financial Sector Stability in Viet Nam

Financial Soundness Indicators for Financial Sector Stability in Viet Nam

Author: Asian Development Bank

Publisher: Asian Development Bank

Published: 2015-09-01

Total Pages: 117

ISBN-13: 9292570900

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Financial soundness indicators (FSIs) are methodological tools that help quantify and qualify the soundness and vulnerabilities of financial systems according to five areas of interests: capital adequacy, asset quality, earnings, liquidity, and sensitivity to market risk. With support from the Investment Climate Facilitation Fund under the Regional Cooperation and Integration Financing Facility, this report describes the development of FSIs for Viet Nam and analyzes the stability and soundness of the Vietnamese banking system by using these indicators. The key challenges to comprehensively implementing reforms and convincingly addressing the root causes of the banking sector problems include (i) assessing banks' recapitalization needs, (ii) revising classification criteria to guide resolution options, (iii) recapitalization and restructuring that may include foreign partnerships, (iv) strengthening the Vietnam Asset Management Company, (v) developing additional options to deal with nonperforming loans, (vi) tightening supervision to ensure a sound lending practice, (vii) revamping the architecture and procedures for crisis management, and (viii) strengthening financial safety nets during the reform process.


Book Synopsis Financial Soundness Indicators for Financial Sector Stability in Viet Nam by : Asian Development Bank

Download or read book Financial Soundness Indicators for Financial Sector Stability in Viet Nam written by Asian Development Bank and published by Asian Development Bank. This book was released on 2015-09-01 with total page 117 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial soundness indicators (FSIs) are methodological tools that help quantify and qualify the soundness and vulnerabilities of financial systems according to five areas of interests: capital adequacy, asset quality, earnings, liquidity, and sensitivity to market risk. With support from the Investment Climate Facilitation Fund under the Regional Cooperation and Integration Financing Facility, this report describes the development of FSIs for Viet Nam and analyzes the stability and soundness of the Vietnamese banking system by using these indicators. The key challenges to comprehensively implementing reforms and convincingly addressing the root causes of the banking sector problems include (i) assessing banks' recapitalization needs, (ii) revising classification criteria to guide resolution options, (iii) recapitalization and restructuring that may include foreign partnerships, (iv) strengthening the Vietnam Asset Management Company, (v) developing additional options to deal with nonperforming loans, (vi) tightening supervision to ensure a sound lending practice, (vii) revamping the architecture and procedures for crisis management, and (viii) strengthening financial safety nets during the reform process.