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The Global Financial Crisis: What Are We Learning About Policy-Makers

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The Global Financial Crisis: What Are We Learning About Policy-Makers Data Needs? Tessa van der Willigen and Pedro Rodriguez Strategy, Policy, and Review Department – PowerPoint PPT presentation

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Title: The Global Financial Crisis: What Are We Learning About Policy-Makers


1
The Global Financial Crisis What Are We
Learning About Policy-Makers Data Needs?
  • Tessa van der Willigen and Pedro Rodriguez
  • Strategy, Policy, and Review Department
  • IMF

2
Outline
  • What happened
  • Short-term actions
  • Better early warning in future
  • Data needs
  • Disclaimer I may stray outside SNA proper, but
    balance sheets are key...

3
What Happened? Background
  • Macroeconomic conditions
  • Low global interest rates, reflecting large
    external surpluses in key emerging markets and
    easy monetary policy
  • Very large increases in asset prices
  • Financial sector regulation
  • Rapid growth in subprime mortgages in US
  • Repackaging into traded structured products

4
What Happened? The Crisis
  • Correction in the US housing market
  • Fall in, and increased uncertainty in, the price
    of structured products
  • Financial institutions
  • made losses and sold assets
  • began to hoard liquidity because of increased
    uncertainty (about values and counterparties)
  • reacted sharply to the collapse of Lehman Brothers

5
What Happened? International Linkages
  • Origins of the crisis in the US
  • Spillovers to Europe because of direct exposures
    and declines in wholesale funding
  • Emerging markets hit after the collapse of
    Lehman
  • The decoupling hypothesis was probably always
    optimistic
  • Accelerated deleveraging

6
Getting the Crisis Under Control--I
  • Restoring confidence in mature financial systems
  • Providing short-term liquidity
  • Removing damaged assets from banks balance
    sheets
  • Recapitalizing banks

7
Getting the Crisis Under Control--II
  • Dealing with capital flow reversals in emerging
    markets
  • Use reserve buffers
  • Liquidity support (swap lines with major central
    banks, the IMFs new Short-Term Liquidity
    Facility)
  • Adjust as necessary
  • Review contingency plans in case of banking
    sector problems

8
Getting the Crisis Under Control--III
  • Addressing the fiscal consequences of
    intervention in the financial system
  • Ensure debt sustainability
  • Develop an exit strategy

9
Better Early Warning in Future--I
  • Better financial stability analysis
  • Risks were moved to off-balance sheet vehicles
  • Risks moved to a burgeoning superstructure of
    complex marketable products and derivatives and
    became untraceable

10
Better Early Warning in Future--II
  • Better macroeconomic analysis
  • Need better identification of asset price bubbles
  • Need a better understanding of how concerned we
    should be about external imbalances
  • (e.g., the discrepancies between the development
    of US foreign assets and its current account)

11
Better Early Warning in Future--III
  • International financial linkages
  • We had far too little idea of countries
    exposures to other countries, different kinds of
    institutions, and different kinds of instruments

12
Data NeedsFiscal
  • Accurate and transparent recording of
  • the fiscal costs of intervention in the banking
    sector and implications for public debt
  • contingent liabilities

13
Data NeedsFinancial Sector
  • A big agenda for regulators
  • Related, we also need better aggregate financial
    stability analysis
  • Considerable efforts in recent years
  • Balance sheet analysis
  • (the IMFs Standardized Report Forms for Monetary
    and Financial Statistics cover banks, non-bank
    depository corporations, insurance companies,
    pension funds, investment funds, special purpose
    entities, etc.)
  • Financial Soundness Indicators
  • (Coordinated Compilation Exercise though these
    are lagging indicators)

14
Data NeedsFinancial Sector, Ctd.
  • Importance of information on
  • Off balance sheet entities
  • Contingent exposures (derivatives)
  • Maturity of liabilities and assets
  • Intrasectoral exposures/market structures
  • Valuation

15
Data NeedsExternal Sector
  • We need
  • better analysis of the buildup of external
    vulnerabilities and
  • better analysis of the potential for
    international spillovers through the financial
    sector.
  • Again, considerable efforts in recent years
  • initiatives on debt and reserves data after the
    Asian crisis
  • Balance of Payments Manual 6th edition, with more
    emphasis on the International Investment Position
    (IIP) and its composition (e.g., maturity,
    currency)
  • Coordinated Portfolio Investment Survey
  • Coordinated Direct Investment Survey
    (forthcoming)

16
Data NeedsExternal Sector, Ctd
  • IIP
  • Sectoral composition
  • Geographical composition
  • Currency composition (incl. of reserves)
  • Expand CPIS (key countries not covered, annual
    frequency, long lags)
  • Valuation issues, esp. of FDI

17
Conclusion
  • Some themes that may be relevant for SNA
  • Balance sheets are indeed crucial
  • We need not just their amounts but their
    sensitivities to various developments (for stress
    testing)
  • Off balance sheet and contingent exposures are
    crucial
  • Aggregation can mask important features
  • Valuation issues are very difficult
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