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Mapping the Shadow Banking System Through a Global Flow of Funds Analysis
This paper presents an approach to understanding the shadow banking system in the United States using a new Global Flow of Funds (GFF) conceptual framework developed by the IMF’s Statistics Department (STA). The GFF uses external stock and flow matrices to map claims between sector-location pairs. Our findings highlight the large positions and gross flows of the U.S. banking sector (ODCs) and its interconnectedness with the banking sectors in the Euro area and the United Kingdom. European counterparties are large holders of U.S. other financial corporations (OFCs) debt securities. We explore the relationship between credit to domestic entities and the growth of non-core liabilities. We find that external debt liabilities of the financial sector are procyclical and are closely aligned with domestic credit growth.
Mapping the Shadow Banking System Through a Global Flow of Funds Analysis
This paper presents an approach to understanding the shadow banking system in the United States using a new Global Flow of Funds (GFF) conceptual framework developed by the IMF’s Statistics Department (STA). The GFF uses external stock and flow matrices to map claims between sector-location pairs. Our findings highlight the large positions and gross flows of the U.S. banking sector (ODCs) and its interconnectedness with the banking sectors in the Euro area and the United Kingdom. European counterparties are large holders of U.S. other financial corporations (OFCs) debt securities. We explore the relationship between credit to domestic entities and the growth of non-core liabilities. We find that external debt liabilities of the financial sector are procyclical and are closely aligned with domestic credit growth.
Shedding Light on Shadow Banking
In this paper, we develop an alternative approach to estimate the size of the shadow banking system, using official data reported to the IMF complemented by other data sources. We base our alternative approach on the expansion of the noncore liabilities concept developed in recent literature to encompass all noncore liabilities of both bank and nonbank financial institutions. As opposed to existing measures of shadow banking, our newly developed measures capture nontraditional funding raised by traditional banks. We apply the new approach to 26 jurisdictions and analyze the results over a twelve-year span. We find that noncore liabilities are procyclical and display more volatility than core liabilities for most jurisdictions in the sample. We also compare our measures to existing measures, such as the measure developed by the Financial Stability Board. Our approach can be replicated over time using internationally-comparable data and thus may serve as an operational tool for IMF surveillance and policy analysis.
Central and Commercial Bank Balance Sheet Risk Before, During, and After the Global Financial Crisis
This paper presents an overview of exposures in the balance sheets of central banks, banks, and other depository institutions during the past decade, with emphasis on asset growth and currency composition. It exploits the IMF’s SRF-based monetary data to show: (i) there was a widely observed buildup of assets prior to the global financial crisis, but there has been no significant reduction in its wake; (ii) the foreign currency composition of the balance sheets of banks and other depository institutions remained remarkably constant in spite of the crisis, significant changes in the composition of balance sheets, and globalization, and does not seem to have been significantly influenced by the behavior of exchange rates; and (iii) exposure to households increased prior to the crisis, but this increased risk was offset by increased capitalization.
Global Liquidity through the Lens of Monetary Aggregates
This paper examines how the financial activities of non-financial corporates (NFCs) in international markets potentially affects domestic monetary aggregates and financial conditions. Monetary aggregates reflect, in part, the activities of NFCs, who channel capital market financing into the domestic banking system, thereby influencing funding conditions and credit availability. Periods of capital inflows are also those when the domestic currency is appreciating, and such periods of rapid exchange rate appreciation coincide with increases in the central bank’s foreign exchange reserves, increasing the stock of narrow money. The paper examines economic significance of cross-country panel data on monetary aggregates and other measures of non-core bank liabilities. Non-core liabilities that reflect the activities of NFCs reflect broad credit conditions and predict global trade and growth.
Financial Soundness Indicators and Banking Crises
The paper tests the effectiveness of financial soundness indicators (FSIs) as harbingers of banking crises, using multivariate logit models to see whether FSIs, broad macroeconomic indicators, and institutional indicators can indeed predict crisis occurrences. The analysis draws upon a data set of homogeneous indicators comparable across countries over the period 2005 to 2012, leveraging the IMF’s FSI database. Results indicate significant correlation between some FSIs and the occurrence of systemic banking crises, and suggest that some indicators are precursors to the occurrence of banking crises.
Can Islamic Banking Increase Financial Inclusion?
The paper analyses existing country-level information on the relationship between the development of Islamic banking and financial inclusion. In Muslim countries—members of the Organization for Islamic Cooperation (OIC)—various indicators of financial inclusion tend to be lower, and the share of excluded individuals citing religious reasons for not using bank accounts is noticeably greater than in other countries; Islamic banking would therefore seem to be an effective avenue for financial inclusion. We found, however, that although physical access to financial services has grown more rapidly in the OIC countries, the use of these services has not increased as quickly. Moreover, regression analyis shows evidence of a positive link to credit to households and to firms for financing investment, but this empirical link remains tentative and relatively weak. The paper explores reasons that this might be the case and suggests several recommendations to enhance the ability of Islamic banking to promote financial inclusion.
Evolution of the Global Financial Network and Contagion: A New Approach
This paper studies the interconnectedness of the global financial system and its susceptibility to shocks. A novel multilayer network framework is applied to link debt and equity exposures across countries. Use of this approach—that examines simultaneously multiple channels of transmission and their important higher order effects—shows that ignoring the heterogeneity of financial exposures, and simply aggregating all claims, as often done in other studies, can underestimate the extent and effects of financial contagion.The structure of the global financial network has changed since the global financial crisis, impacted by European bank’s deleveraging and higher corporate debt issuance....
IMF Research Bulletin, March 2014
The Research Summaries in the March 2014 Research Bulletin focus on efficiency of health expenditure (Francesco Grigoli and Javier Kapsoli) and employment growth in European Union countries (Bas B. Bakker and Li Zeng). The Q&A article looks at “Seven Questions on Financial Interconnectedness” (Co-Pierre Georg and Camelia Minoiu). The Research Bulletin also includes a listing of IMF Working Papers, Staff Discussion Notes, and Recommended Readings from the IMF Bookstore. Information on the IMF Economic Review—the research journal of the IMF—is also provided.
Handbook of Empirical Research on Islam and Economic Life
In Islamic jurisprudence, a comprehensive ethic has been formulated governing how business and commerce should be run, how accountability to God and the community is to be achieved, and how banking and finance is to be arranged. This Handbook examines how well these values are translated into actual performance. It explores whether those holding true to the system are hindered and put at a disadvantage or whether the Islamic institutions have been able to demonstrate that faith-based activities can be rewarding, both economically and spiritually.
