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A Strategy for Developing a Market for Nonperforming Loans in Italy
Addressing the buildup of nonperforming loans (NPLs) in Italy since the global financial crisis will remain a challenge for some time and be important for supporting a sustained, robust economic recovery. The buildup reflects both the prolonged recession as well as structural factors that have held back NPL write-offs by banks. The paper discusses the impediments to NPL resolution in Italy and a strategy for fostering a market for restructuring distressed assets that could support corporate and financial restructuring.
European Union
This article is an analysis on the restructuring banking system of the European Union. The global financial crisis created the need to restructure by immensely reflecting weaknesses in the public, households, corporate, and other financial sectors. The restructuring includes the strengthening of bank resolution tools, the activation of nonperforming loans, the maintenance of macrofinancial framework, recovery of market access, and so on. The Executive Board recommends this transition of the European Union because this paves the way to financial stability globally.
Switzerland
This paper discusses key findings of the Financial System Stability Assessment on Switzerland. Stress tests indicate that the Swiss banks are robust against even severe shocks. Banks have increased their capital, and the two global banks have achieved substantial deleveraging. Swiss Financial Market Supervisory Authority has focused on significantly improving the quality of its supervision. Real estate bubbles appear to be emerging. With monetary instruments not available, macroprudential instruments are being introduced, but so far are limited and untested. Interest rates are negative at some maturities, threatening the business models of life insurance and pension companies.
Collateral, Netting and Systemic Risk in the OTC Derivatives Market
To mitigate systemic risk, some regulators have advocated the greater use of centralized counterparties (CCPs) to clear Over-The-Counter (OTC) derivatives trades. Regulators should be cognizant that large banks active in the OTC derivatives market do not hold collateral against all the positions in their trading book and the paper proves an estimate of this under-collateralization. Whatever collateral is held by banks is allowed to be rehypothecated (or re-used) to others. Since CCPs would require all positions to have collateral against them, off-loading a significant portion of OTC derivatives transactions to central counterparties (CCPs) would require large increases in posted collateral, possibly requiring large banks to raise more capital. These costs suggest that most large banks will be reluctant to offload their positions to CCPs, and the paper proposes an appropriate capital levy on remaining positions to encourage the transition.
From Fragmentation to Financial Integration in Europe
From Fragmentation to Financial Integration in Europe is a comprehensive study of the European Union financial system. It provides an overview of the issues central to securing a safer financial system for the European Union and looks at the responses to the global financial crisis, both at the macro level—the pendulum of financial integration and fragmentation—and at the micro level—the institutional reforms that are taking place to address the crisis. The emerging financial sector management infrastructure, including the proposed Single Supervisory Mechanism and other elements of a banking union for the euro area, are also discussed in detail.
Italy
The Selected Issues paper investigates options for improving the efficiency of the Italian judicial system and closing the regional performance gap. Better courts would bring about macroeconomic benefits, including increased employment opportunities, and higher productivity, investment, and research and development. The Italian financial system faces several challenges in order to restore profitability under weak growth conditions and to adapt to a changing global environment. This chapter explores ways of improving profitability and the challenges of shifting from a bank-based financial system, common in EU countries, to a more ‘market-based’ system. Along with this shift comes a divers...
The (Sizable) Role of Rehypothecation in the Shadow Banking System
This paper examines the sizable role of rehypothecation in the shadow banking system. Rehypothecation is the practice that allows collateral posted by, say, a hedge fund to its prime broker to be used again as collateral by that prime broker for its own funding. In the United Kingdom, such use of a customer’s assets by a prime broker can be for an unlimited amount of the customer’s assets while in the United States rehypothecation is capped. Incorporating estimates for rehypothecation (and the associated re-use of collateral) in the recent crisis indicates that the collapse in non-bank funding to banks was sizable. We show that the shadow banking system was at least 50 percent bigger than documented so far. We also provide estimates from the hedge fund industry for the - churning - factor or re-use of collateral. From a policy angle, supervisors of large banks that report on a global consolidated basis may need to enhance their understanding of the off-balance sheet funding that these banks receive via rehypothecation from other jurisdictions.
Alternative Lending
The book covers alternative lending using the emergence of Debt Funds in the EU as a case study. The book explores the risks that they can pose to financial stability, and the regulatory and supervisory tools available to mitigate these risks. Through this analysis, the book uncovers the risks and potential risk mitigation tools that can be applied to the alternative lenders–including debt funds and other potential alternative lenders. After identifying the reasons behind the growth of alternative lenders (using as example the assets of Alternative Investment Funds (AIFs) and in particular debt funds) and the simultaneous decrease of the banks’ assets, the book analyses the systemic impo...
Global Financial Stability Report, October 2012
The October 2012 Global Financial Stability Report (GFSR) finds increased risks to the global financial system, with the euro area crisis the principal source of concern, and urges policymakers to act now to restore confidence, reverse capital flight, and reintegrate the euro zone. This GFSR presents a report on whether regulatory reforms are moving the financial system in the right direction, and finds that progress has been limited, partly because many reforms are in the early stages of implementation and partly because crisis intervention methods are still in use in a number of economies, delaying the movement of the financial system onto a safer path. The final chapter examines whether certain aspects of financial structure enhance economic outcomes. Indeed, some structural features are associated with better outcomes. In particular, financial buffers made up of high-quality capital and truly liquid assets tend to be associated with better economic performance.
IMF Research Bulletin, December 2014
The December 2015 IMF Research Bulletin features a sampling of key research from the IMF. The Research Summaries in this issue look at “The Impact of Deflation and Lowflation on Fiscal Aggregates (Nicolas End, Sampawende J.-A. Tapsoba, Gilbert Terrier, and Renaud Duplay); and “Oil Exporters at the Crossroads: It Is High Time to Diversify” (Reda Cherif and Fuad Hasanov). Mahvash Saeed Qureshi provides an overview of the fifth Lindau Meeting in Economics in “Meeting the Nobel Giants.” In the Q&A column on “Seven Questions on Financial Frictions and the Sources of the Business Cycle, Marzie Taheri Sanjani looks at the driving forces of the business cycle and macroeconomic models. The top-viewed articles in 2014 from the IMF Economic Review are highlighted, along with recent IMF Working Papers, Staff Discussion Notes, and IMF publications.
