The document provides a preliminary assessment of policy responses by G-20 countries to address the global banking crisis from September 2008 to February 2009. It finds that initial responses were reactive and aimed at containment through measures like debt guarantees and liquidity support. Key limitations identified include inadequate creditor protection if economic conditions worsen, ad hoc capital injections, and a lack of frameworks for asset management. Going forward, the document recommends a more comprehensive and coordinated international strategy across four elements: coordination of restructuring policies, cooperation on toxic asset valuation and disposal, financial institution inspections, and frameworks for public ownership of banks.
Eurorient ron nechemia at the epicenter where the financial system meets the ...EurOrientF
The document summarizes an interview with Mr. Ron Nechemia, Chairman of EurOrient Financial Group, regarding the global financial crisis. In the interview, Mr. Nechemia accurately predicted the financial crisis and its impacts. He warns that strains on the global financial system will deepen the economic downturn. He calls for comprehensive reform of regulatory frameworks and new liquidity instruments to support developing countries. Mr. Nechemia emphasizes the need for a holistic approach and global cooperation to address interconnected challenges through this crisis.
This document discusses recommendations for restoring confidence in securitization markets following the 2008 financial crisis. It notes that securitization is important for credit availability but weaknesses were revealed. The Global Joint Initiative was launched by industry groups to implement recommendations and best practices. Based on research, the report identifies priorities like increasing transparency, standardizing practices, and addressing conflicts of interest. The goal is to restart securitization in a way that prevents future failures and supports economic growth.
1. The document discusses the failures of development policies like the Washington Consensus and financial globalization due to their reliance on first-best thinking when second-best thinking is required given real-world market and institutional failures.
2. It argues policy should be based on second-best thinking and target "binding constraints" through selective, sequential, and context-specific reforms rather than assuming all distortions can be removed at once.
3. Financial globalization failed because capital markets operate under significant market imperfections that cannot be fully addressed, and capital inflows can cause overvaluation and move exchange rates in ways that hinder development.
From supervision to resolution next steps on the road to european banking un...ManfredNolte
The document discusses next steps for creating a European banking union after the agreement to form a Single Supervisory Mechanism. It makes three key points:
1. The European Council has outlined plans for a Single Resolution Mechanism but many details are still preliminary and depend on other initiatives like the involvement of the European Stability Mechanism in bank recapitalizations.
2. Both the upcoming Bank Recovery and Resolution Directive and the Single Resolution Mechanism should enable substantial participation of existing creditors in future bank restructurings.
3. Efforts to establish a legislative framework should not delay decisive action on managing current banking fragility in Europe, which is hindering economic growth and employment.
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
Central banks around the world have reduced interest rates to near or below zero in response to the 2008 financial crisis. This has increased money supply as central banks expand their balance sheets by purchasing bonds. Narrow money supply is rising but broad money is just starting to rise. If broad money rises sharply, inflation is likely to accelerate. However, economists are not forecasting rapid inflation. While central bank actions have increased money supply, quantitative easing does not directly increase private sector money holdings. Inflation is also impacted by fiscal policies and debt levels. Even low levels of inflation gradually reduce purchasing power over time.
The International Monetary Fund works to foster global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. The IMF monitors economic and financial developments, provides policy advice to prevent crises, and lends to countries in need of temporary financing to support policies addressing underlying problems.
This document summarizes initial lessons from the financial crisis in three areas: regulation, macroeconomic policy, and the global financial system. Key failures included fragmented regulation that allowed regulatory arbitrage, a lack of coordination between macro and financial stability policies, and an inability within the global system to identify vulnerabilities. Lessons indicate regulation needs broader oversight of all systemically important financial activities, macro policies should consider financial stability risks, and greater international cooperation is required.
Eurorient ron nechemia at the epicenter where the financial system meets the ...EurOrientF
The document summarizes an interview with Mr. Ron Nechemia, Chairman of EurOrient Financial Group, regarding the global financial crisis. In the interview, Mr. Nechemia accurately predicted the financial crisis and its impacts. He warns that strains on the global financial system will deepen the economic downturn. He calls for comprehensive reform of regulatory frameworks and new liquidity instruments to support developing countries. Mr. Nechemia emphasizes the need for a holistic approach and global cooperation to address interconnected challenges through this crisis.
This document discusses recommendations for restoring confidence in securitization markets following the 2008 financial crisis. It notes that securitization is important for credit availability but weaknesses were revealed. The Global Joint Initiative was launched by industry groups to implement recommendations and best practices. Based on research, the report identifies priorities like increasing transparency, standardizing practices, and addressing conflicts of interest. The goal is to restart securitization in a way that prevents future failures and supports economic growth.
1. The document discusses the failures of development policies like the Washington Consensus and financial globalization due to their reliance on first-best thinking when second-best thinking is required given real-world market and institutional failures.
2. It argues policy should be based on second-best thinking and target "binding constraints" through selective, sequential, and context-specific reforms rather than assuming all distortions can be removed at once.
3. Financial globalization failed because capital markets operate under significant market imperfections that cannot be fully addressed, and capital inflows can cause overvaluation and move exchange rates in ways that hinder development.
From supervision to resolution next steps on the road to european banking un...ManfredNolte
The document discusses next steps for creating a European banking union after the agreement to form a Single Supervisory Mechanism. It makes three key points:
1. The European Council has outlined plans for a Single Resolution Mechanism but many details are still preliminary and depend on other initiatives like the involvement of the European Stability Mechanism in bank recapitalizations.
2. Both the upcoming Bank Recovery and Resolution Directive and the Single Resolution Mechanism should enable substantial participation of existing creditors in future bank restructurings.
3. Efforts to establish a legislative framework should not delay decisive action on managing current banking fragility in Europe, which is hindering economic growth and employment.
Swedbank was founded in 1820, as Sweden’s first savings bank was established. Today, our heritage is visible in that we truly are a bank for each and every one and in that we still strive to contribute to a sustainable development of society and our environment. We are strongly committed to society as a whole and keen to help bring about a sustainable form of societal development. Our Swedish operations hold an ISO 14001 environmental certification, and environmental work is an integral part of our business activities.
Central banks around the world have reduced interest rates to near or below zero in response to the 2008 financial crisis. This has increased money supply as central banks expand their balance sheets by purchasing bonds. Narrow money supply is rising but broad money is just starting to rise. If broad money rises sharply, inflation is likely to accelerate. However, economists are not forecasting rapid inflation. While central bank actions have increased money supply, quantitative easing does not directly increase private sector money holdings. Inflation is also impacted by fiscal policies and debt levels. Even low levels of inflation gradually reduce purchasing power over time.
The International Monetary Fund works to foster global growth and economic stability. It provides policy advice and financing to members in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty. The IMF monitors economic and financial developments, provides policy advice to prevent crises, and lends to countries in need of temporary financing to support policies addressing underlying problems.
This document summarizes initial lessons from the financial crisis in three areas: regulation, macroeconomic policy, and the global financial system. Key failures included fragmented regulation that allowed regulatory arbitrage, a lack of coordination between macro and financial stability policies, and an inability within the global system to identify vulnerabilities. Lessons indicate regulation needs broader oversight of all systemically important financial activities, macro policies should consider financial stability risks, and greater international cooperation is required.
This document summarizes research on economic vulnerability and resilience in small island developing states. It defines economic vulnerability as a state's inherent exposure to external shocks due to factors like trade openness and export concentration. It also defines economic resilience as a state's ability to withstand or recover from shocks through policies promoting macroeconomic stability, market efficiency, good governance, and social development. The document discusses how vulnerability and resilience can be measured through indices and categorized into scenarios. Many small island states succeed economically through resilience-building policies that counteract their inherent vulnerability.
Systemic Risk in Banking : Systemic risk is the possibility that an event at the company level could trigger severe instability or collapse an entire industry or economy.
Next Generation Financial Architecture. Part 4 - National BlockNet.Eugene Kagansky
Top-down framework of Next Generation Financial Architecture based on bottom-up analysis of major crypto-currencies, financial instruments, financial regulations and risk management practices of financial and non-financial organizations.
Syz & co syz asset management - 1 year in 10 snapshots 2013SYZBank
The document provides a summary of key economic trends and events from 2012 in 10 points. It discusses that the major predicted economic disasters were avoided, including a relapse in the US economy, a "hard landing" in China, and a breakup of the Eurozone. It also covers trends in the US recovery, the stabilization of Eurozone activity, actions by central banks like the ECB and BoJ, the rebound in Asian exports, strong performance of bonds, and changes in currencies like the US dollar and gold.
The document discusses the impact of the economic crisis on third sector organizations and the opportunities it presents. It notes that the crisis presents a double challenge for CSOs to confront the impact while responding to new social needs. The crisis increases vulnerabilities of CSOs related to financial dependency, long-term planning difficulties, diversification of activities, and labor relations. The impact varies based on organization size, activities, and groups served. While challenging, the crisis also presents an opportunity for social transformation.
Based on the 'Ten Essentials', this disaster resilience scorecard identifies risk and provides a basis for future investments.
IBM and AECOM have developed the Disaster Resilience Scorecard for the United Nations Making Cities Resilient Campaign, to be available free to any city to enable it to assess its resilience to natural hazards. While some hazards such as earthquakes and tsunamis have always been present, others such as floods, hurricanes, tornados or heat events are expected to increase in frequency and severity due to the changing climate. With growing populations and urbanization putting more lives and economic activity in harm’s way, it is imperative that the world’s cities learn to understand and manage the risks that they face. The scorecard provides a mechanism to measure a city’s progress in this activity and allow the city to develop a prioritized list of actions to be taken to improve resilience. This document answers frequently asked questions.
This document provides a summary of recent developments in global financial markets following the sub-prime mortgage crisis. It discusses how turmoil originated from problems in the US sub-prime mortgage market but was exacerbated by a liquidity crisis in the European inter-bank market. While central banks provided liquidity to stabilize markets, the document argues the current financial system's overreliance on complex, opaque instruments like CDOs and lack of transparency regarding risk has increased uncertainty and amplified volatility. Long-term regulatory reforms are needed to improve transparency and prevent excessive risk-taking.
Viewpoint Newsletter from Clear View Wealth Advisors with a focus on the role of dividend-paying stocks and the inflation-deflation debate. Also includes links to the free financial roadmap tool.
Avant Garde Wealth Mgmt - Quarterly letter - 1406 - AppendixGaurav Jalan
The document summarizes key points from the Bank of International Settlements' annual report regarding risks from extended periods of accommodative monetary policy by central banks. The BIS warns that easy money policies have increased risks of financial crisis by compressing term and risk premiums. They note signs of overvaluation in asset prices and complacency among investors. The BIS argues central banks need to pay attention to risks of exiting monetary stimulus too late or gradually to avoid damage from side effects and bubbles created by accommodative policies.
Fiscal austerity, structural reforms and re-election: explaining the “possibl...Latvijas Banka
Presentation by Marion Salines (ECB) at Country workshop: "EU Balance-of-Payments assistance for Latvia: Foundations of Success" organized by the European Commission, Directorate General for Economic and Financial Affairs, and the Bank of Latvia.
Brussels, March 1, 2012
This document discusses aspects of global economic crises and provides potential solutions. It notes that before crises, problems are known but reforms face resistance during growth periods. Crises are then assessed superficially and policy responses are too late or not well-coordinated. It analyzes causes like excess leverage, risky investments, lack of transparency, and failure of international coordination. Solutions proposed include stronger financial regulation and supervision, higher capital and liquidity standards, addressing regulatory gaps, reforming accounting rules, and enhancing international cooperation.
One of the biggest drawbacks in the subprime crisis was a wrong fit of risk measurements and tools to the firm’s portfolio allocation strategies.1 Crouhy (2009) and Stulz (2009) among others point out what went wrong in the risk management practices during the current and other recent financial crisis:
(a) Inadequate use of risk metrics. Daily VaR (Value at Risk) is widely used in financial institutions to assess the trading activities risk. However, VaR measures the minimum worst loss expected (at 99% or 95% confidence level, depending on the distribution used) and not the expected worst loss (Stulz, 2009). Furthermore, VaR does not tell us anything about distribution of the losses BEYOND the minimum worst loss and even worse, it is not sure whether VaR can capture low probability catastrophic events.
1) The recent global financial crisis demonstrated that the financial sector can impose significant costs on the broader economy through risky behavior like excessive leverage and reliance on short-term funding.
2) Many European governments have introduced taxes on the financial sector to recover costs from bailing out the sector during the crisis. Proponents argue these taxes can reduce risky behavior and make the sector bear the social costs it imposes.
3) Potential financial sector taxes being considered include taxes on an institution's balance sheet size, volatile wholesale funding sources, and high-frequency trading to encourage more stable funding and reduce financial system risks.
The AMBCC Financial Service Committee is comprised of financial service professionals representing credit unions, banks, lending institutions, insurance companies, financial planning, private equity, and venture capitalist firms.
The FSC works to represent, educate, and promote its members and ensure them economic opportunities and market presence.
Next Generation Financial Architecture. Part 2 - Tranched Futures and Options.Eugene Kagansky
Financial instruments with finite payoff, specifically designed for Blockchain implementation using delivery vs. payment smart contracts with collateralized final payoff.
Martyn Parker - Country risk management and financial preparedness for disasersGlobal Risk Forum GRFDavos
1) Country risk management involves identifying, assessing, and implementing prevention, mitigation, and adaptation strategies for natural disasters, with balanced allocation of funds between prevention/mitigation and post-disaster response.
2) Economic losses from natural catastrophes have significantly exceeded insured losses globally, highlighting the protection gap.
3) Risk transfer tools such as catastrophe bonds, index-based insurance, and parametric contracts have increasingly been used by public entities to finance post-disaster costs and support adaptation.
For more information contact: emailus@marcusevans.com
Christian Menegatti, a speaker at the marcus evans Foundations & Endowments Investment Summit Spring 2012 provides his experience on investing in emerging markets.
Join the 2014 North American Summit along with 60 CIO’s and top decision makers from North America’s largest corporate and public pension funds as well as foundations, endowments and those offering the latest investment strategies on the marketing
For more information contact: emailus@marcusevans.com
The document summarizes Barry Chandler's webinar on stocktaking for hospitality businesses. The webinar covered the goals of stocktaking like raising profits and reducing theft. It discussed how to prepare areas like the bar, kitchen, and fridges for an accurate stocktake. The webinar also explained how to carry out the stocktake, investigate any variances in results, and make a plan for the future like standardizing systems and removing theft opportunities.
Laboratory management and safety best bookChala Dandessa
Improper management of laboratories has been observed in many schools, with equipment and chemicals not stored properly and inventory not regularly conducted. This can result in loss of materials and safety hazards. The document outlines goals and rules for effective laboratory management and safety. It discusses organizing the laboratory space, maintaining inventory, and ensuring safety compliance through proper chemical handling and storage, use of protective equipment, clean-up procedures, and training of laboratory assistants. General safety rules address dress code, first aid, heating/fire, chemical, electrical, and end-of-lab procedures to minimize risks.
This document discusses quality management in medical laboratories. It emphasizes that laboratory results must be accurate, reliable and timely to ensure quality patient care. A quality management system must address all aspects of laboratory operations including personnel, facilities, equipment, documents and records. Implementing standards from organizations like ISO and CLSI can help laboratories effectively manage quality. Maintaining quality requires coordinating all steps in testing from sample collection to reporting results.
This document summarizes research on economic vulnerability and resilience in small island developing states. It defines economic vulnerability as a state's inherent exposure to external shocks due to factors like trade openness and export concentration. It also defines economic resilience as a state's ability to withstand or recover from shocks through policies promoting macroeconomic stability, market efficiency, good governance, and social development. The document discusses how vulnerability and resilience can be measured through indices and categorized into scenarios. Many small island states succeed economically through resilience-building policies that counteract their inherent vulnerability.
Systemic Risk in Banking : Systemic risk is the possibility that an event at the company level could trigger severe instability or collapse an entire industry or economy.
Next Generation Financial Architecture. Part 4 - National BlockNet.Eugene Kagansky
Top-down framework of Next Generation Financial Architecture based on bottom-up analysis of major crypto-currencies, financial instruments, financial regulations and risk management practices of financial and non-financial organizations.
Syz & co syz asset management - 1 year in 10 snapshots 2013SYZBank
The document provides a summary of key economic trends and events from 2012 in 10 points. It discusses that the major predicted economic disasters were avoided, including a relapse in the US economy, a "hard landing" in China, and a breakup of the Eurozone. It also covers trends in the US recovery, the stabilization of Eurozone activity, actions by central banks like the ECB and BoJ, the rebound in Asian exports, strong performance of bonds, and changes in currencies like the US dollar and gold.
The document discusses the impact of the economic crisis on third sector organizations and the opportunities it presents. It notes that the crisis presents a double challenge for CSOs to confront the impact while responding to new social needs. The crisis increases vulnerabilities of CSOs related to financial dependency, long-term planning difficulties, diversification of activities, and labor relations. The impact varies based on organization size, activities, and groups served. While challenging, the crisis also presents an opportunity for social transformation.
Based on the 'Ten Essentials', this disaster resilience scorecard identifies risk and provides a basis for future investments.
IBM and AECOM have developed the Disaster Resilience Scorecard for the United Nations Making Cities Resilient Campaign, to be available free to any city to enable it to assess its resilience to natural hazards. While some hazards such as earthquakes and tsunamis have always been present, others such as floods, hurricanes, tornados or heat events are expected to increase in frequency and severity due to the changing climate. With growing populations and urbanization putting more lives and economic activity in harm’s way, it is imperative that the world’s cities learn to understand and manage the risks that they face. The scorecard provides a mechanism to measure a city’s progress in this activity and allow the city to develop a prioritized list of actions to be taken to improve resilience. This document answers frequently asked questions.
This document provides a summary of recent developments in global financial markets following the sub-prime mortgage crisis. It discusses how turmoil originated from problems in the US sub-prime mortgage market but was exacerbated by a liquidity crisis in the European inter-bank market. While central banks provided liquidity to stabilize markets, the document argues the current financial system's overreliance on complex, opaque instruments like CDOs and lack of transparency regarding risk has increased uncertainty and amplified volatility. Long-term regulatory reforms are needed to improve transparency and prevent excessive risk-taking.
Viewpoint Newsletter from Clear View Wealth Advisors with a focus on the role of dividend-paying stocks and the inflation-deflation debate. Also includes links to the free financial roadmap tool.
Avant Garde Wealth Mgmt - Quarterly letter - 1406 - AppendixGaurav Jalan
The document summarizes key points from the Bank of International Settlements' annual report regarding risks from extended periods of accommodative monetary policy by central banks. The BIS warns that easy money policies have increased risks of financial crisis by compressing term and risk premiums. They note signs of overvaluation in asset prices and complacency among investors. The BIS argues central banks need to pay attention to risks of exiting monetary stimulus too late or gradually to avoid damage from side effects and bubbles created by accommodative policies.
Fiscal austerity, structural reforms and re-election: explaining the “possibl...Latvijas Banka
Presentation by Marion Salines (ECB) at Country workshop: "EU Balance-of-Payments assistance for Latvia: Foundations of Success" organized by the European Commission, Directorate General for Economic and Financial Affairs, and the Bank of Latvia.
Brussels, March 1, 2012
This document discusses aspects of global economic crises and provides potential solutions. It notes that before crises, problems are known but reforms face resistance during growth periods. Crises are then assessed superficially and policy responses are too late or not well-coordinated. It analyzes causes like excess leverage, risky investments, lack of transparency, and failure of international coordination. Solutions proposed include stronger financial regulation and supervision, higher capital and liquidity standards, addressing regulatory gaps, reforming accounting rules, and enhancing international cooperation.
One of the biggest drawbacks in the subprime crisis was a wrong fit of risk measurements and tools to the firm’s portfolio allocation strategies.1 Crouhy (2009) and Stulz (2009) among others point out what went wrong in the risk management practices during the current and other recent financial crisis:
(a) Inadequate use of risk metrics. Daily VaR (Value at Risk) is widely used in financial institutions to assess the trading activities risk. However, VaR measures the minimum worst loss expected (at 99% or 95% confidence level, depending on the distribution used) and not the expected worst loss (Stulz, 2009). Furthermore, VaR does not tell us anything about distribution of the losses BEYOND the minimum worst loss and even worse, it is not sure whether VaR can capture low probability catastrophic events.
1) The recent global financial crisis demonstrated that the financial sector can impose significant costs on the broader economy through risky behavior like excessive leverage and reliance on short-term funding.
2) Many European governments have introduced taxes on the financial sector to recover costs from bailing out the sector during the crisis. Proponents argue these taxes can reduce risky behavior and make the sector bear the social costs it imposes.
3) Potential financial sector taxes being considered include taxes on an institution's balance sheet size, volatile wholesale funding sources, and high-frequency trading to encourage more stable funding and reduce financial system risks.
The AMBCC Financial Service Committee is comprised of financial service professionals representing credit unions, banks, lending institutions, insurance companies, financial planning, private equity, and venture capitalist firms.
The FSC works to represent, educate, and promote its members and ensure them economic opportunities and market presence.
Next Generation Financial Architecture. Part 2 - Tranched Futures and Options.Eugene Kagansky
Financial instruments with finite payoff, specifically designed for Blockchain implementation using delivery vs. payment smart contracts with collateralized final payoff.
Martyn Parker - Country risk management and financial preparedness for disasersGlobal Risk Forum GRFDavos
1) Country risk management involves identifying, assessing, and implementing prevention, mitigation, and adaptation strategies for natural disasters, with balanced allocation of funds between prevention/mitigation and post-disaster response.
2) Economic losses from natural catastrophes have significantly exceeded insured losses globally, highlighting the protection gap.
3) Risk transfer tools such as catastrophe bonds, index-based insurance, and parametric contracts have increasingly been used by public entities to finance post-disaster costs and support adaptation.
For more information contact: emailus@marcusevans.com
Christian Menegatti, a speaker at the marcus evans Foundations & Endowments Investment Summit Spring 2012 provides his experience on investing in emerging markets.
Join the 2014 North American Summit along with 60 CIO’s and top decision makers from North America’s largest corporate and public pension funds as well as foundations, endowments and those offering the latest investment strategies on the marketing
For more information contact: emailus@marcusevans.com
The document summarizes Barry Chandler's webinar on stocktaking for hospitality businesses. The webinar covered the goals of stocktaking like raising profits and reducing theft. It discussed how to prepare areas like the bar, kitchen, and fridges for an accurate stocktake. The webinar also explained how to carry out the stocktake, investigate any variances in results, and make a plan for the future like standardizing systems and removing theft opportunities.
Laboratory management and safety best bookChala Dandessa
Improper management of laboratories has been observed in many schools, with equipment and chemicals not stored properly and inventory not regularly conducted. This can result in loss of materials and safety hazards. The document outlines goals and rules for effective laboratory management and safety. It discusses organizing the laboratory space, maintaining inventory, and ensuring safety compliance through proper chemical handling and storage, use of protective equipment, clean-up procedures, and training of laboratory assistants. General safety rules address dress code, first aid, heating/fire, chemical, electrical, and end-of-lab procedures to minimize risks.
This document discusses quality management in medical laboratories. It emphasizes that laboratory results must be accurate, reliable and timely to ensure quality patient care. A quality management system must address all aspects of laboratory operations including personnel, facilities, equipment, documents and records. Implementing standards from organizations like ISO and CLSI can help laboratories effectively manage quality. Maintaining quality requires coordinating all steps in testing from sample collection to reporting results.
1. A quality management system for a medical laboratory seeks to efficiently achieve the objectives of providing accurate test results to physicians and contributing to patient care.
2. Key aspects of a quality management system include personnel management, equipment management, process control, purchasing and inventory, and continuous improvement.
3. Implementing a quality management system can help detect and prevent errors, saving time, personnel costs, and improving patient outcomes compared to an error-prone laboratory.
Purchasing is the formal process of buying goods and services. The purchasing process can vary from one organization to another, but there are some common key elements.
The process usually starts with a demand or requirements this could be for a physical part (inventory) or a service. A requisition is generated, which details the requirements (in some cases providing a requirements speciation) which actions the procurement department. A request for proposal (RFP) or request for quotation (RFQ) is then raised. Suppliers send their quotations in response to the RFQ, and a review is undertaken where the best offer (typically based on price, availability and quality) is given the purchase order.
Advantages and Disadvantages of Policy
What makes and effective Policy?
Purchasing policies - Providing Guidance and Direction
Purchasing procedures
Reference:
The document discusses evaluation of purchase management performance. It outlines various quantitative and qualitative metrics that can be used, including price advantage, inventory levels, and relations with suppliers. Internal and external agencies can evaluate performance. Methods include forms, flowcharts, checklists and key performance ratios. A purchase audit examines the organization, policies, procedures, evaluation and reporting of the purchase department.
This document discusses various aspects of laboratory management including organizing the laboratory space, storing equipment and chemicals, purchasing supplies, and record keeping. It emphasizes the importance of proper storage, labeling, and stock control to ensure safety, availability of materials, and cost effectiveness. Key recommendations include storing chemicals by type in labeled cabinets and containers, maintaining minimum and maximum stock levels, and having processes for requisition, receipt, and auditing of all laboratory items.
PURCHASING PROCEDURES, E-PROCUREMENT, AND SYSTEM CONTRACTING pter 007 instru...Zamri Yahya
The chapter discusses purchasing procedures, e-purchasing, and systems contracting. It identifies the typical steps in the conventional purchasing cycle as requisitioning materials, determining suppliers, issuing purchase orders, expediting deliveries, receiving materials, and processing invoices. E-purchasing can reduce costs for indirect materials like office supplies through electronic ordering and reverse auctions. However, direct materials purchasing requires close supplier relationships not suited for e-procurement. Electronic data interchange (EDI) allows electronic transmission of orders and invoices but implementation requires overcoming resistance to change.
12 bad banks_finding_the_right_exit_from_the_financial_crisisFachry Frisandi
1. The document discusses different approaches that banks and governments have taken to establish "bad banks" to deal with toxic and non-core assets arising from the financial crisis.
2. It identifies five core design topics for setting up a bad bank: defining asset scope, establishing the legal framework, evaluating the business case, defining portfolio strategies, and setting up operating models and processes.
3. Individual banks have pursued on-balance sheet guarantees, internal restructuring units, off-balance sheet SPEs, and bad bank spin-offs as legal structures, while governments may establish broader state-supported bad bank plans.
La pandemia di coronavirus (COVID-19) pone sfide di stabilità sanitaria, economica e finanziaria senza precedenti. A seguito dell'epidemia di COVID-19, i prezzi delle attività a rischio sono crollati e la volatilità del mercato è aumentata vertiginosamente, mentre le aspettative di inadempienze diffuse hanno portato a un aumento dei costi di indebitamento. Le decisive azioni di politica monetaria, finanziaria e fiscale volte a contenere le ricadute della pandemia e sono riuscite a stabilizzare gli investitori tra la fine di marzo e l'inizio di aprile. I mercati hanno recuperato alcune delle loro perdite.
1. GLOBAL IMBALANCES1.1 Cheap But Flighty How Global Imbalanc.docxSONU61709
1. GLOBAL IMBALANCES
1.1 Cheap But Flighty: How Global Imbalances Create Financial Fragility
by Toni Ahnert and Enrico Perotti
Bank of Canada Working Paper 2015-33
https://www.bankofcanada.ca/wp-content/uploads/2015/08/wp2015-33.pdf
August 2015
How a wealth shift to emerging countries may lead to instability in developed countries. Investors exposed to expropriation risk are willing to pay a safety premium to invest in countries with good property rights. Domestic intermediaries compete for such cheap funding by carving out safe claims, which requires demandable debt. While foreign inflows allow countries to expand their domestic credit, risk-intolerant foreign investors withdraw even under minimal uncertainty. We show that more foreign funding causes larger and more frequent runs. Beyond some scale, even risk-tolerant domestic investors are induced to withdraw to avoid dilution. As excess liquidation causes social losses, a domestic planner may seek prudential measures on the scale of foreign inflows.
Topics to study:
· Investment / risk - relationship
· Global Imbalances
· Factors to attract foreign investment
· Safety-seeking foreign funding
1. An increasing scale of foreign funding may induce runs even by risk-tolerant investors since they seek to avoid dilution.
2. Result supports a mandate for introducing a macroprudential regulator to oversee the nature of foreign inflows because the socially preferred funding structure would involve less credit volume and more stability than the private choice.
3. Global imbalances shaped the credit boom and, ultimately, the financial crisis
4. The accumulation of wealth in countries with a weak protection of property rights creates a demand for absolute safety provided by intermediaries in developed countries.
5. The safety-seeking nature of foreign flows creates risk.
1.2 Global Imbalances and the Financial Crisis: Products of Common Causes
Maurice Obstfeld and Kenneth Rogoff
University of California, Berkeley, and Harvard University.
Federal Reserve Bank of San Francisco
https://scholar.harvard.edu/files/rogoff/files/global_imbalances_and_financial_crisis_0.pdf
November 2009
This paper makes a case that the global imbalances of the 2000s and the recent global financial crisis are intimately connected. Both have their origins in economic policies followed in a number of countries in the 2000s and in distortions that influenced the transmission of these policies through U.S. and ultimately through global financial markets. In the U.S., the interaction among the Fed’s monetary stance, global real interest rates, credit market distortions, and financial innovation created the toxic mix of conditions making the U.S. the epicenter of the global financial crisis. Outside the U.S., exchange rate and other economic policies followed by emerging markets such as China contributed to the United States’ ability to borrow cheaply abroad and thereby finance its unsustainable housing bubble.
Topics to st ...
What is the theory of public debt managementSolution1. Sove.pdfJUSTSTYLISH3B2MOHALI
What is the theory of public debt management???
Solution
1. Sovereign debt management is the process of establishing and executing a strategy for
managing the government\'s debt in order to raise the required amount of funding, achieve its
risk and cost objectives, and to meet any other sovereign debt management goals the government
may have set, such as developing and maintaining an efficient market for government securities.
2. In a broader macroeconomic context for public policy, governments should seek to ensure that
both the level and rate of growth in their public debt is fundamentally sustainable, and can be
serviced under a wide range of circumstances while meeting cost and risk objectives. Sovereign
debt managers share fiscal and monetary policy advisors\' concerns that public sector
indebtedness remains on a sustainable path and that a credible strategy is in place to reduce
excessive levels of debt. Debt managers should ensure that the fiscal authorities are aware of the
impact of government financing requirements and debt levels on borrowing costs.1 Examples of
indicators that address the issue of debt sustainability include the public sector debt service ratio,
and ratios of public debt to GDP and to tax revenue.
3. Poorly structured debt in terms of maturity, currency, or interest rate composition and large
and unfunded contingent liabilities have been important factors in inducing or propagating
economic crises in many countries throughout history. For example, irrespective of the exchange
rate regime, or whether domestic or foreign currency debt is involved, crises have often arisen
because of an excessive focus by governments on possible cost savings associated with large
volumes of short-term or floating rate debt. This has left government budgets seriously exposed
to changing financial market conditions, including changes in the country\'s creditworthiness,
when this debt has to be rolled over. Foreign currency debt also poses particular risks, and
excessive reliance on foreign currency debt can lead to exchange rate and/or monetary pressures
if investors become reluctant to refinance the government\'s foreign-currency debt. By reducing
the risk that the government\'s own portfolio management will become a source of instability for
the private sector, prudent government debt management, along with sound policies for
managing contingent liabilities, can make countries less susceptible to contagion and financial
risk.
4. A government\'s debt portfolio is usually the largest financial portfolio in the country. It often
contains complex and risky financial structures, and can generate substantial risk to the
government\'s balance sheet and to the country\'s financial stability. As noted by the Financial
Stability Forum\'s Working Group on Capital Flows, \"recent experience has highlighted the
need for governments to limit the build-up of liquidity exposures and other risks that make their
economies especially vulnerable to exte.
COVID-19: Sustaining Liquidity/Funding Management and Treasury Operations in ...Boston Consulting Group
As COVID-19’s international spread has accelerated, markets have started to price in epidemic-related risks. This paper provides a four-step approach that can enable executives to quantify impacts and define mitigating actions, helping them tackle near-term (crisis management) and long-term (structural liquidity management).
1) The document discusses financial crime and regulatory responses after the 2008 financial crisis in the UK. It examines proposed measures by bodies like the Basel Committee and the Alternative Investment Fund Managers Directive.
2) It also discusses criticisms of these regulatory responses for not fully addressing the problems and for exacerbating the crisis through increased costs for banks. Loopholes still allow some financial crime to thrive.
3) The document also analyzes international coordination challenges between countries and how austerity measures disproportionately affected some countries that bailed out foreign banks. Overall, the regulatory responses were criticized as not doing enough to curb criminal and harmful non-criminal behaviors in the financial industry.
Financial Institutions need a strategy to help maximize their level of resilience and prepare for any macroeconomic and financial scenario amid the COVID-19 crisis.
In our view, it is critical for Financial Institutions to take specific steps both for the short term and the medium term. In this White Paper we have identified ten key action points to be addressed.
The Cyprus crisis is one of the most complex in the Eurozone -although in absolute terms it is a minor crisis. An analysis of the ongoing developments from different perspectives leads to the conclusion that we are witnessing a «perfect crisis» at the confluence of sovereign debt and banking crisis together with debt overhang of business and households and a severe decline of competitiveness. As a result CY has amassed a large external debt that can not be repaid, no matter what fraction of the country’s real domestic economic output is appropriated through austerity measures. Hence, fiscal austerity leads to deflationary stagnation and alone does not work. We advocate a policy response that addresses multiple dimensions of the problem with policy options of (1) austerity deleveraging, (2) structural reforms, (3) financial innovations, (4) partial privatizations and (5) debt restructuring. These options are drawn from lessons of what worked well, and what not, in crises of other countries and these lessons are summarized in lieu of conclusions
CIDSE paper on financial regulation nov 2012 finalManfredNolte
This document discusses CIDSE's role in advocating for value-based international financial regulation. It outlines four guidelines that regulation should follow according to Catholic Social Teaching principles: 1) Place the financial sector at the service of a real economy focused on human well-being and sustainability, 2) Prevent financial crises to the greatest extent possible and mitigate their impacts, 3) Promote a just distribution of wealth and income, and 4) Be the result of transparent and accountable processes that involve all actors in society. The document then examines specific issues like too big to fail institutions, bank capital requirements, derivatives, credit rating agencies, and shadow banking, providing analysis and recommendations.
Cidse paper on financial regulation nov 2012 final copiaManfredNolte
This document provides an overview of CIDSE's role in advocating for international financial regulation based on Catholic Social Teaching. It discusses four principles that should guide financial sector regulation: 1) ensuring the financial sector supports a real economy focused on human well-being and sustainable development, 2) preventing financial crises and mitigating their impacts, 3) promoting a just distribution of wealth and income, and 4) ensuring regulatory processes are transparent and accountable. The document then examines specific issues in financial regulation, including too big to fail institutions, bank capital requirements, derivatives, hedge funds, credit rating agencies, financial sector taxation, and shadow banking. It provides CIDSE's perspective on these issues and concludes with recommendations.
This document discusses different types of fiscal risk that governments face. It identifies three main types - economic, technical, and political risks. Economic risks relate to forecast errors in macroeconomic variables, while technical risks arise from errors in revenue and spending forecasts. The document further classifies risks as specific, general, or systemic. Specific risks include contingent liabilities from government guarantees. General risks stem from errors in macroeconomic and demographic forecasts. Systemic risks threaten the stability of the entire fiscal system. The document reviews country practices for estimating and managing fiscal risks, and identifies lessons for improving transparency, risk assessment, and mitigation.
This document provides a summary and analysis of policies to address rising global debt levels. It discusses three policy options: debt restructuring, which allows renegotiation of debt terms; inflation, which reduces the real value of debts over time; and fiscal policies, though these are not described. For debt restructuring, the document outlines debates around its impacts and challenges in implementation. Inflation is analyzed as preferable to restructuring but also faces issues in achieving an appropriate rate and avoiding negative economic consequences. Overall the document performs an even-handed evaluation of the benefits and limitations of different debt management strategies.
Macroeconomic Developments in Low-Income Developing CountriesDr Lendy Spires
The IMF staff paper examines macroeconomic developments in low-income developing countries (LIDCs) between 2000-2014. It finds that while most LIDCs experienced strong economic growth, it was primarily driven by factor accumulation rather than productivity. About half of LIDCs are assessed as medium to highly vulnerable to external shocks, with weakened fiscal positions being a key vulnerability. Looking ahead, LIDCs face economic headwinds from slow growth in advanced economies. To strengthen resilience, policy actions to rebuild fiscal buffers and strengthen debt management are priorities.
Public debt management refers to strategies employed by a country's national authority to manage external debt, including loans from other countries. It aims to raise required funding while achieving risk and cost objectives. Sound debt management is important as it can reduce susceptibility to financial crises by facilitating broader financial market development. The World Bank provided a loan to help the Philippines restore creditworthiness by reducing pressure from its excessive debt burden through a debt restructuring program.
Lessons of the Financial Crisis for Future Regulation of Financial InstitutionsPeter Ho
The document summarizes lessons learned from the ongoing financial crisis for future regulation of financial institutions and markets. Key points include:
- The crisis exposed inadequacies in regulation, supervision, and risk management that failed to prevent excessive risk-taking. Reform is needed to address these issues.
- Priorities for reform include expanding regulation to new entities, addressing procyclicality of capital requirements, improving information sharing, resolving cross-border regulatory issues, and strengthening central bank liquidity management.
- International bodies like the FSF and G20 working groups are examining these issues and developing policy recommendations, but more work is still needed to implement reforms.
INTERNATIONAL MONETARY FUND
Abstract
The U.S. financial and economic crisis has had severe global repercussions. The run-up to the crisis involved a substantial and widespread underestimation of risks—especially in housing—and growing leverage and liquidity mismatches, in particular through off-balance-sheet vehicles and non-bank entities in less-regulated areas. Against a backdrop of easy global financial conditions, this dynamic fed an unsustainable buildup of financial imbalances, above all in housing markets. The sharp decline in housing prices that started in 2007 weakened several systemically important financial institutions, culminating in the collapse of Lehman Brothers, and revealing major weaknesses in the U.S. regulatory and resolution frameworks. This was followed by the worst global financial panic since the Great Depression, with extreme strains in a broad range of markets, volatility in capital flows and exchange rates, and a cascade of systemic events. Economic activity collapsed globally, with trade contracting sharply and advanced economies as a group registering the steepest decline in production in the postwar period. Emerging markets economies also experienced intense pressure, amid retrenching trade and tighter international financing conditions.
I. Overview ; Outlook and Risks
1. Recent data suggest that the sharp fall in output may now be ending, although economic activity remains weak. Economic indicators point to a decelerating rate of deterioration, particularly in labor and housing markets, both of which are key to economic recovery and financial stability. In tandem, financial conditions have noticeably improved, with narrowing interest-rate spreads and growing confidence in financial stability in the wake of measures deployed by the Administration, the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve. That said, both financial and economic indicators remain at stressed or weak levels by historical standards.
2. 4. The staff's outlook remains for a gradual recovery, consistent with past international experience of financial and housing market crises. The combination of financial strains and ongoing adjustments in the housing and labor markets is expected to restrain growth for some time, with a solid recovery projected to emerge only in mid-2010. Against this background, GDP is expected to contract by 2½ percent in 2009, followed by a modest ¾ percent expansion in 2010 on a year-average basis (on a Q4-over-Q4 basis, -1 ½ percent in 2009 and 1 ¾ percent in 2010). Meanwhile, growing economic slack—with unemployment peaking at close to 10 percent in 2010—would push core inflation to very low levels, with the headline CPI expected to decrease by ½ percent in 2009 and increase by 1 percent in 2010. rates, on concerns about fiscal sustainability; and rising corporate distress. Much will also depend on developments abroad, including progress made in strengthening financial institutions and markets.
II. Near-term stabilization
1. Macroeconomic policies are providing welcome support to demand. The fiscal stimulus—well targeted, timely, diversified, and sizeable—is projected to boost annual GDP growth by 1 percent in 2009 and ¼ percent in 2010. This is being appropriately complemented by a highly expansionary monetary stance and “credit easing” measures that are also relieving financial strains. Continued clear communication on the near-term outlook will be essential to anchor inflation expectations, given the prevailing uncertainty. If activity proves weaker than expected, the Fed could undertake additional credit easing, and further strengthen its commitment to maintain a highly accommodative stance. If necessary, additional fiscal stimulus could also be considered, focused on fast-acting measures, although this would need to be complemented by a concomitantly stronger medium-term adjustment.
2. Steps to s
This document discusses ways the G20 could improve its impact on development and addresses it has neglected. It recommends the G20:
1. Improve accountability by transparently measuring progress on commitments and objectives like sustainability and well-being.
2. Improve development coherence by assessing how policies like financial regulation impact development.
3. Increase consultation with developing countries and civil society to better represent the poor.
4. Strengthen financial regulation to prevent future crises and speculation, and ensure finance supports productive activities.
5. Implement commitments to financial transparency, crack down on tax havens, and address corporate tax avoidance.
6. Make progress on innovative long-term climate finance sources like fossil
CH&Cie Risk Regulation and Strategy Occasional Papers Number 1 - vfinale - 15...Alexandre Kateb
This document provides an overview of post-financial crisis regulatory reforms and their impact on banking business models and strategies. It begins with an introduction discussing the market failures and incentives that triggered the crisis. It then outlines the global regulatory reform agenda agreed to at G20 summits, including microprudential Basel III regulations, systemic risk measures, and OTC derivatives reforms. The document analyzes the implementation of reforms in the US and EU, and the resulting banking union. It concludes by discussing the reforms' impacts on banking strategies and business models, including funding and liquidity risk management, capital markets restructuring, and the rebirth of securitization.
The document proposes establishing a Government Investment Enterprise (GIE) to create a national foreclosure mitigation program. The GIE would hold equity investments in single-family residences to help restore the mortgage market. It would use existing TARP and GSE funds, without requiring new funding. The current foreclosure crisis is prolonged due to inefficiencies in programs like HAMP that often do not find an optimal solution for all parties. The proposed GIE aims to better match borrower ability with holder criteria to find a balanced solution and stabilize the housing market.
Introduction The crisis has shown that there is no such thing as an optimal banking structure or model. Some pure investment banks (e.g. Lehman Brothers or Bear Stearns), some pure retail banks (e.g. Spanish Cajas, Irish banks, Northern Rock), and some universal banks (e.g. ING or RBS) alike either failed or were absorbed or required exceptional government support. Accordingly, the European High-Level Expert Group chaired by Erkki Liikanen came to the conclusion that no particular business model fared particularly well, or particularly poorly, in the financial crisis, but the Group rather pointed out excessive risk taking as well as reliance on short term funding, not matched with adequate capital protection.1 To address these weaknesses many key reforms have been adopted at the international level over the last years or will be finalised in the coming months.2 Most notably, the agreement reached by the Basel Committee on Banking Supervision (BCBS, 2011) on the new bank capital and liquidity framework will raise the quality, quantity and international consistency of bank capital and liquidity, constrain the build-up of leverage and maturity mismatches, and introduce capital buffers above the minimum requirements that can be drawn upon in bad times. Systemically important financial institutions (SIFIs) will also be required to have higher loss absorbency capacity. These multi-pronged reforms lay down much stricter rules for banks within a short timeframe.
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The global fiscal response to the crisis has been sizable but implementation has been uneven. Among G-20 countries, fiscal deficits are projected to increase by 5.5% of GDP in both 2009 and 2010 due to discretionary stimulus measures, automatic stabilizers, and falling revenues. Tax cuts have been implemented more quickly than spending measures. While a comprehensive assessment is difficult due to limited reporting, signs indicate the pace of stimulus spending has accelerated recently in some countries like the US. Overall, fiscal expansion has helped counter the economic downturn but medium-term fiscal strategies are still lacking in many countries.
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1) The US recovery in the 1930s was rapid until 1937, when unemployment surged again due to a switch to contractionary fiscal and monetary policy that prolonged the Depression.
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STOCKTAKING OF THE G-20 RESPONSES TO THE GLOBAL BANKING CRISIS
1. Group of Twenty
Meeting of the Ministers and Central Bank Governors
March 13–14, 2009
London, United Kingdom
Note by the Staff of the International Monetary Fund
on
STOCKTAKING OF THE G-20 RESPONSES TO THE GLOBAL BANKING CRISIS
2. 2
Executive Summary
Country reponses to the global crisis are in an early stage. Actions taken to date
(September 2008–February 2009) are broadly in line with the nature of actions taken during many
previous financial crises. The immediate response of national authorities prevented creditor panic,
but measures are still needed to restore financial stability. During the first few months of
managing the crisis, countries’ immediate priority has been on addressing liquidity needs of
the system and forestalling widespread panic. Bank restructuring measures responded to
market pressures rather than being based on a full diagnosis of the underlying soundness of
institutions and estimating losses.
Some of the key limitations of the policy response to date include:
Creditor protection may not be adequate if economic conditions continue to
deteriorate. Following the failure of Lehman Brothers in September 2008, G-20
countries responded with targeted, rather than comprehensive, creditor protection. Such
containment strategies may not be robust to a deepening crisis.
Capital injection programs have been ad hoc. As the number of troubled financial
institutions rose sharply, national authorities often responded to market pressures for
recapitalization without a well-defined set of criteria, diagnosis, or a coherent
restructuring or rehabilitation program.
Asset management policies are only slowing being put in place. Institutional
arrangements for dealing with bad assets are only just emerging (e.g., the U.S. public-
private investment fund and the U.K. asset purchase scheme), and difficult operational
issues related to the valuation and disposal of these assets still need to be addressed.
During the next phase, these limitations need to be addressed and other critical aspects of
crisis management frameworks need to be strengthened in the context of a
comprehensive and internationally coordinated strategy, which does not shrink from
government takeovers of nonviable institutions. Such a program would include the
following elements:
A framework of international coordination of restructuring and recapitalization policies.
International cooperation on a framework for valuing and disposing of toxic assets.
Quick action to inspect major financial institutions to determine their financial health
and remediate as necessary.
Institutional frameworks for public holdings of banks that ensure that banks that have
been recapitalized operate on sound business principles and without undue government
influence.
An effective communications strategy explaining the overall approach and objectives.
Many G-20 members have yet to feel the full brunt of the crisis, and G-20 members
should take immediate action to contain further deterioration. Even in countries where
banking sectors still appear resilient, the deepening global financial crisis is likely to imply
greater stresses, and early action to assess vulnerabilities based on realistic assessments of
asset valuations and to put in place a well-defined and clearly communicated strategy for
dealing with weak institutions is critical.
3. 3
I. INTRODUCTION
1. The current crisis is deeper and wider than previous post-war crises. The crisis
has shown an exceptional interconnectedness of markets and institutions, reflecting financial
globalization and massive cross-border capital flows during the past decade. Rising
delinquencies in the U.S. subprime market and the failure of several major financial
institutions have shocked world financial markets and led to a global economic slowdown.
This crisis has also been unusual in that the build-up of private sector indebtedness occurred
over a longer period, especially in the United States, and was fostered by the development of
new (and poorly understood) asset-backed securities.
2. Countries did not fully coordinate national policies in the face of the global crisis
during the first few months of the crisis. 1 National policies to address the immediate
liquidity needs of domestic financial institutions have forestalled widespread panic and
deposit runs. Similarly, bank restructuring measures responded to separate events rather than
being developed as part of a forward-looking strategy. Global coordination of these actions
could have strengthened their effectiveness, both over time and across countries.
3. This paper provides a preliminary assessment of the policy responses taken by
the G-20 countries through the first two months of 2009. Because such policies are
evolving quickly, any assessment is necessarily preliminary, but this paper recommends a
more comprehensive, coordinated, and consistent approach to addressing the crisis. In fact,
the merit of this recommendation is recognized by many countries, which are already
adapting their policy stances.
II. THE LESSONS FROM PAST CRISES: BASIC PRINCIPLES OF CRISIS MANAGEMENT
4. Past experience has illustrated that in their early stages, the depth of crises is
often underestimated and initial responses can be incomplete and ad hoc. This response
often stems from inadequate loss recognition, regulatory forbearance, and a diagnosis of the
soundness of the financial system based on assumptions of a mild economic downturn. This
lack of information and a tendency to underestimate the magnitude of the problem can lead
to an institution-by-institution approach that only addresses the symptoms of the financial
distress, while balance sheets and the real economy continue to deteriorate in response to the
underlying problems.
1
The stocktaking surveyed crisis responsive measures of the 21 signatories of the November 15 G-20 Leaders
Declaration that included Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy,
Japan, Korea, Mexico, Netherlands, Russia, Saudi Arabia, South Africa, Spain, Turkey, the United Kingdom,
and the United States. Actions taken are as of February 24, 2009.
4. 4
5. This experience underscores the need for system-wide and comprehensive
resolution measures to deal with systemic crises. While specific measures may vary,
reflecting differences in the institutional, legal and regulatory environment of each country,
successful strategies must deal with the root causes of the crisis, typically carried out in three
interrelated phases: 2
• Containment: Creditor runs by both depositors and other creditors must be halted as
adjustment policies cannot be implemented in periods of collapsing creditor
confidence.
• Restructuring and resolution: Restructuring the financial system requires loss
identification and recognition, a diagnosis of banks’ viability, and operational
restructuring of weak but viable banks.
• Asset management: Debt restructuring and management of distressed assets can
begin once the financial position of the banks is understood. This restructuring and
management can take place at the firm level or through a centralized asset
management function.
III. THE POLICY RESPONSE TO THE CURRENT CRISIS—A STOCKTAKING
6. Initial policy measures were reactive, responding to the specific needs of
individual institutions (Table 1). In part, this approach reflected an assumption that the
problems were national in scope rather than global and critical uncertainties about whether
the crisis reflected liquidity or solvency problems in banks, the valuation of complex
structured products, and the real impact of the collapsing asset price bubble.
7. Communications concerning policy measures were uneven and (at times)
inadequate among the G-20. Some countries sought to be transparent and explained in a
timely manner their actions, using their agencies’ websites to post press releases and formal
announcements describing actions taken. In many cases, however, the crisis response was
unclear and failed to restore confidence, with information regarding decisions covered
mainly in local news reports that were conflicting at times. 3
2
For more detail, see David S. Hoelscher and Marc Quintyn, Managing Systemic Crises, IMF Occasional
Paper 224, 2003; and SM/09/23, “An Overview of the Legal, Institutional, and Regulatory Framework for Bank
Insolvency.”
3
For example, the majority of countries that introduced new liquidity measures communicated their actions on
the central bank website through official press releases. However, efforts to disclose information related to
recapitalization plans, asset purchase plans or other guarantee facilities were often weaker. Also, in several
cases, the press releases did not appear in English and there was no “internationally friendly” summary.
5. 5
Table 1. Overview of Policy Measures
G-20 Countries—Spain and Netherlands
Containment Resolution
Deposit Insurance Debt Guarantees Liquidity Recapitalization Asset Management
Capital
Establish, Amount Capital Injected Asset Amount
Capital Plans Committed
No Increase or Wholesale Committed Strengthened (bn of Purchase Committed Loan
3
Change Expand Borrowing (bn of US$) Measures Established (bn of US$) US$) Plans (bn of US$) Guarantees
√
Argentina √
Australia √ √ unclear √ √ 5.2
Brazil √ √ √ 3.8
Canada √ √ unclear √ √ 59.6
China √ √ 1/ 19.2
France √ √ 402 √ √ 50.3 17.0 √
Germany √ √ 503 √ √ 100.5 26.6 √ 6.3 √
India √ √
Indonesia √ √
/4
√ √ unclear √ √ 25.1 √
Italy
Japan √ √ √ 120 √ 27.6
Mexico √ √ 3 √
Netherlands √ √ 251 √ √ 25.1 22.3
Russia √ √ unclear √ √ 26.6 20.3 √ 6
Saudi Arabia √ √ unclear √ 1/ 2.7
South Africa √ √
Spain √ √ 126 √ 5/ √ 62.8 √
South Korea √ √ unclear √ √ 15.5 2.3 √ 3.8
Turkey √ √
United Kingdom √ √ 355 √ √ 71 52.6 √ 71 √
2
United States √ √ √ √ 1,100 √
unclear √ 750 236.0
Total 1,184 399 1,346
Source: Various government announcements and information on official websites. Exchange rates
as of 2/23/09.
1/ While China did not establish a capital plan, the government recapitalized public state enterprises:
Agricultural Bank of China, China Construction Bank, Bank of China, and Industrial and Commercial
Bank of China. Saudi Arabia did not establish a plan.
2/ Funds committed under private/public investment fund ranges between US$500 billion and
US$1 trillion, and funds committed under GSE/MBS purchases amounted to US$600 billion.
3/ All countries have indicated that the capital injections will be available to assist sound banks
except France, which has indicated that its plan will assist only troubled banks. Italy and the
United States indicated that both sound and troubled banks will be covered.
4/ Italy did not increase its deposit insurance limit or expand the coverage; however, the government
will provide a quot;supplementaryquot; guarantee meaning that if the private scheme is unable to cover all
losses, the government will reimburse.
5/ While Spain did not commit a specified amount for capital assistance, the government announced
it would buy shares in banks, if needed.
6. 6
Containment of the crisis
8. The September 2008 failure of Lehman Brothers was taken as a signal in the
markets that the rules of the game were changing. Unlike the treatment of earlier
failures—Northern Rock, Countrywide, IndyMac, and Bears Stearns—the closure of Lehman
imposed significant losses on creditors. The result was a marked deterioration in market
sentiment and concerns among most G-20 authorities about contagion even to strong banks.
This led authorities to strengthen their creditor protection programs.
9. In the light of the failure of Lehman, G-20 countries typically responded with
selective rather than comprehensive creditor protection schemes (Table 2). This
response reflected the absence of immediate pressures from creditor runs, which permitted
countries to use a combination of measures, including increased deposit insurance protection,
full guarantees to selected sectors, and, as funding difficulties merged, guarantees of bank
debt instruments.
Table 2. Creditor Guarantees
Any
change in Wholesale Date of
deposit borrowing first
Both
insurance guaranteed guarantee
United States √ 3-Oct-08
√ √
6-Oct-08
Germany √ √ √
7-Oct-08
Spain √ √ √
7-Oct-08
United Kingdom √ √ √
7-Oct-08
Netherlands √ √ √
12-Oct-08
Australia √ √ √
13-Oct-08
/1
Italy √ √ √
17-Oct-08
Saudi Arabia √ √ √
19-Oct-08
France √
19-Oct-08
South Korea √
20-Oct-08
Mexico √
21-Oct-08
Russia √ √ √
23-Oct-08
Canada √
23-Oct-08
Indonesia √
1/ Italy did not increase its deposit insurance limit or expand the coverage;
however, the government will provide a quot;supplementaryquot; guarantee meaning
that if the private scheme is unable to cover all losses, the government will
reimburse.
• The most frequently used containment measure was an increase in debt
guarantees for banks. By October 2008, 12 countries provided some form of
wholesale debt guarantee (Australia, Canada, France, Germany, Italy, Mexico, the
Netherlands, Russia, Korea, Spain, the United Kingdom, and the United States) and
8 countries guaranteed interbank liabilities (France, Germany, Italy, Russia, the
7. 7
Netherlands, Saudi Arabia, the United States and the United Kingdom). Most of these
guarantees were extended in the second half of October, following the collapse of
Lehman.
• Only limited actions were adopted by the G-20 countries to maintain depositor
confidence. Most countries (12 countries of the 21 reviewed) left deposit insurance
levels unchanged. While the European Union authorized an increase in such
coverage, most of the European countries in the G-20 already had protection levels at
or above the enhanced level (France, Italy, and Germany). Within the European
Union, the Netherlands and Spain increased the level of deposit insurance and
Germany expanded coverage to guarantee all household deposits. Outside the
European Union, five countries increased depositor protection (Indonesia, Russia,
Saudi Arabia, the United Kingdom and the United States). Australia for the first time
adopted a deposit insurance system.
• Seven countries did not adopt additional measures to protect creditors. Depositor
confidence and bank funding mechanisms were considered sufficiently strong that no
immediate policy response was necessary. In some cases, countries considered their
existing safety nets to be adequate to address any problems.
• Measures to enhance market liquidity were adopted by all G-20 countries. G-20
countries deployed a number of tools to provide additional liquidity to the markets.
Actions taken included lowering reserve requirements (eight countries: Argentina,
China, India, Russia, Saudi Arabia, Brazil, Indonesia, and Turkey); establishing new
swap facilities (nine countries: Australia, Brazil, Canada, China, Japan, Mexico,
Korea, United Kingdom, and the United States.); and easing access to lender of resort
facilities (Russia, United Kingdom, and the United States). Some countries were able
to strengthen existing facilities by increasing existing swap lines or loosening terms
of relevant facilities.
10. Despite the wide variation in measures taken, creditor confidence has been
maintained and depositor runs avoided. Before the failure of Lehman, creditors’
confidence in the stability of the system had been strong and individual failures were
attributed to narrow issues arising from the subprime market. Subsequent to Lehman’s
failure, authorities had to take actions to reassure creditors that the governments would not
allow a collapse of the financial system. For example, the United States, in rapid succession,
protected primary dealers and brokers (March), AIG (September), money market mutual
funds (September), unsecured debt (October), commercial paper (October) asset-backed
securities (November), Citi (November), and Bank of America (January).
8. 8
Bank recapitalization
11. During 2008, banks in many G-20 countries came under severe funding
pressures, leading to a series of bank interventions and resolutions. The resolution
strategies were bank-specific, reflecting the belief that the financial system remained
fundamentally solvent.
12. Pressures intensified in the first half of 2008. In January, the U.K. authorities
nationalized Northern Rock, following almost six months of providing liquidity and seeking
merger partners. Funding pressures in the United States let to the intervention and resolution
of three major U.S. institutions. 4
13. In the final months of 2008, the pace of bank intervention and resolution sharply
accelerated. Triggered by the September failure of Lehman Brothers, market conditions
sharply tightened for bank funding. In the second half of September, 10 large financial
institutions required public intervention, followed by another 15 in October. Because the
problems in each institution were not considered part of a systemic collapse, however, the
authorities sought solutions on a bank-by-bank basis. In September, the U.K. authorities
provided liquidity and waived competition rules to arrange for the merger of HBOS with
Lloyds and then nationalized Bradford and Bingley. The U.S. authorities closed Lehman
Brothers and Washington Mutual, arranged the sale of both Merrill Lynch and Wachovia,
and took a significant ownership share of the insurance company AIG. Luxembourg,
Belgium, and the Netherlands split up and recapitalized the regional bank, Fortis. Pressures
continued in October with the collapse of the three Icelandic banks and capital support to
three large U.K. banks (RBS, Lloyds, TSB) and six French banks. In November, Citi
required a combination of guarantees and additional capital support from the United States.
14. As of February 2009, nine countries directly injected public funds into banks.
Capital injections have amounted to approximately US$400 billion with the United States
injecting by far the largest amount—almost two-thirds of the total—followed by the
United Kingdom (Table 3). These injections were not based on a comprehensive assessment
of capital needs or on an assessment of the viability of the recipient financial institutions.
Rather, they were triggered by a combination of funding needs, deteriorating market
perceptions, and a desire to ensure that bank capital levels were considered adequate by
markets to absorb future losses.
15. Most of the capital injections occurred using preferred shares. This appeared to
reflect hope that bank management would be able to reverse their banks’ deterioration,
coupled with a concern regarding the market reaction from taking on significant (or majority)
4
Countrywide and Bear Stearns were acquired by other institutions and IndyMac was converted to a bridge
bank
9. 9
ownership of institutions, and a view that the yield attached to preferred shares would be
more palatable given fiscal constraints (Table 4). 5 Direct ownership—the purchase of
ordinary shares—was used in fewer than 10 percent of the cases (selected cases in Germany,
the United Kingdom, and the United States). Less common were the provision of silent
participations (Germany) and hybrid subordinated debt (France.)
Table 3. Capital Injections
Country US$ billion
China 19.2
France 17.0
Germany 26.6
Netherlands 22.3
Russia 20.3
Saudi Arabia 2.7
South Korea 2.3
United Kingdom 52.6
United States 236.0
Total 399.0
Table 4. Forms of Capitalization 1/
Injection Amount Percent
Common 30.7 7.7
Preferred Shares 307.0 77.0
Subordinated Debt 13.2 3.3
Other/Unspecified 48.0 12.0
Total 399 100
Source: Various government announcements and information
on official websites.
1/ Exchange rates as of 2/23/09
16. Few conditions were initially placed on banks receiving public resources. Nine
countries placed some form of requirements on banks, including some form of directed
lending or restrictions on dividends (France, Germany, Italy, Japan, Russia, Saudi Arabia,
Korea, the United Kingdom, and the United States). Only one country (Italy) required the
presentation of a restructuring plan. As the programs have evolved, however, capital support
5
Preferred shares a do not give usually the investor voting rights. If investors want to have a say in the
operations of the institution, they need ordinary shares. Some public sector recapitalization programs initially
inject convertible preferred shares that convert to ordinary shares under predetermined conditions.
10. 10
plans are increasingly including a range of limitations and conditions that institutions need to
meet to access to government capital (Table 5).
Table 5. Conditions to Use Public Funds
Code
Salary Lending of Board
Dividends Restrictions Rules 1/ Ethics Membership
France √ √ √
Germany √ √ √
Italy √ √ √
Japan √
Netherlands √ √
Russia √
Saudi Arabia √
South Korea √
United Kingdom √ √ √ √
United States √ √ √
Source: Various government announcements and information on official websites.
1/ Governments have announced that funds be directed toward domestic economies
to increase lending in mortgage markets, SMEs, and households in general.
17. About half of the G-20 countries now have programs that can provide capital
quickly to banks when needed. Nine countries established direct capital support plans
(France, Germany, Italy, Japan, the Netherlands Russia, South Korea, the United Kingdom,
and the United States). Most of these plans envision provision of capital support to sound
banks. 6
• Some governments established conditions for accessing such programs. For example,
some programs restricted dividends, executive pay, and bonuses, and established
codes of ethics. Italy required a restructuring plan and government priority for
dividends, Germany placed limits on executive compensation and suspension of
dividends, and the United States placed restrictions on dividends and executive
salaries.
• Some governments announced that these public funds should be directed toward the
domestic economies particularly to increase lending in mortgage markets, small and
medium sized enterprise sectors, and households in general. For example, the recently
announced Financial Stability Plan in the United States, “comes with conditions to
6
However, the capital plan for France allowed capital injections to troubled banks and Italy allowed capital
injections to both sound and troubled banks.
11. 11
help ensure that every dollar of assistance is used to generate a level of lending
greater than what would have been possible in the absence of government support.”
Similar actions are being taken in France, Italy, and the United Kingdom. 7
Asset management
18. Asset management policies for the purchase of toxic assets have evolved slowly.
Reflecting the difficulties in pricing structured products, only two countries authorized the
purchase of quot;toxic assetsquot;—Germany and the United States (Table 6). Germany was the first
G-20 country to commit to using public funds to purchase risky assets (Euro 70 billion). In
October 2008, the U.S. Troubled Asset Relief Program (TARP) was also envisioned as such
a program but the complexities of valuing toxic assets led the authorities to shift to a Capital
Assistance Program (CAP). In February of 2009, the United States announced its intention to
create a $500 billion asset purchase program, the Private-Public Investment Fund to manage
such assets purchased from banks. 8
19. Eight countries have also announced programs to purchase a wide range of
higher-quality assets. Governments will purchase both high quality structured products and
loan portfolios (Table 6). In January 2009, the United Kingdom announced a £50 billion
asset purchase program to purchase high quality assets and established the Bank of England
Asset Purchase Facility Fund Limited, a wholly-owned subsidiary of the Bank. 9 In addition,
Australia authorized the purchase of performing RMBS, Japan introduced a program to
purchase investment securities of banks, and Canada authorized the purchase of insured
mortgage loans via auctions.
20. Asset guarantee programs have also been introduced. Six countries have
committed to guarantee certain loan portfolios held by their banks: four EU countries
(France, Germany, Italy, and Spain), the United States, and the United Kingdom (see
Table 6). Most countries appear to have issued general guarantees noting that new lending
operations (Spain), potential defaults (Germany), or loans issued by local banks and branches
(Italy) will be covered. In addition, some countries (Brazil, France, Japan, Russia, and the
7
Outside the G-20, Switzerland is allowing domestic lending to be excluded from its leverage ratio for UBS
and Credit Suisse. The Swiss Banking Commission has indicated that domestic lending activities are important
to the Swiss economy.
8
While details have yet to be announced, the design will include a market mechanism to value assets.
9
This asset protection scheme will protect a portion of the banks' balance sheets, so that the healthier core of the
bank will be quot;untaintedquot; and able to proceed with normal lending activities. The ‘first loss,’ incurred on future
losses will remain with banks and the protection provided by the government will cover 90 percent of the
remaining loss.
12. 12
United States) have introduced new or expanded existing programs to provide direct support
to borrowers in an effort to limit deterioration in banks’ loan portfolio.
Table 6. Summary of Asset Plans Established 1/
Quality of Assets Amount Type of Asset Purchased Loans
Other Mixture Guaranteed
Purchased Committed Loans Structured Products Unclear
In bns of Mortgage Mortgage Other Unsold
Toxic High quality US$ loans securities securities houses Mixture Unclear
Australia √ 5.2 √
Brazil √ 3.8 √ √ √
Canada √ 59.6 √
France √
Germany √ 6.3 √ √
Italy √
Japan √ 27.6 √
Russia √ 6.0 √
Spain √ 62.8 √ √
South Korea √* 3.8 √
United Kingdom √ 71.0 √ √ √ √ √
United States √ 2/ √ 1100 √ √ √ √
Total 1346.1
1/ Exchange rates as of 2/23/09.
2/ South Korea will purchase unsold houses, difficult to categorize as toxic or not.
3/ Funds committed under private/public investment fund ranges between US$500 billion and
US$1 trillion, and funds committed under GSE/MBS purchases = US$6 billion.
IV. HAVE MEASURES BEEN SUCCESSFUL?
A. The Market Response
21. While it is still too early to judge effectiveness, the measures described above
have so far had only a limited impact on the financial position of banks. Central bank
intervention has successfully addressed pressures on bank liquidity, but the underlying
financial position of financial institutions, particularly the large complex financial institutions
(LCFIs), remains precarious. LCFI profitability and earnings have deteriorated and no major
improvement is envisaged by market analysts. Moreover, although Tier 1 ratios have been
boosted through the capital injections, tangible common equity (TCE) remains at a critical
level for most institutions. Asset quality is weakening, and credit spreads for LCFIs have
remained wide. Finally, measures have not stemmed the market-driven de-leveraging
process, and lending surveys point to a continued deterioration for the next year in the
United States, Europe, Canada and Japan.
22. While national policies have eased funding pressures, market confidence
remains weak. Government guarantees for senior bank debt have relieved some of the
funding pressures, but these actions have not averted the collapse in bank stock prices, and a
sharp increase in the cost of capital. In broader credit markets, the situation remains difficult
13. 13
and highly dependent on official support. While highly rated issuers may have access to
central bank facilities, lower rated issuers are credit-constrained. Moreover, structured
product markets have remained largely frozen except for agency guaranteed issues and
support operations by central banks.
B. The Policy Response
23. Policies have contained creditor flight but coverage has been uneven. The
containment measures have responded to events and may not be sufficiently robust to
accommodate a deepening crisis. As the crisis evolves, creditors may become increasingly
worried about the solvency of the financial system. To this end, countries need to prepare
deeper and more comprehensive strategies.
24. National policies have not yet grappled with the implications of the evolving
global crisis at this point. Different approaches open the possibility of arbitrage and
liquidity flows from relatively less protected to more protected jurisdictions. A home country
bias in approaches risks disrupting cross border flows. This cross-border nature of financial
systems and institutions makes it important to coordinate crisis containment measures.
25. Even on a national basis, resolution strategies for the banking problems have
taken place on a case-by-case basis, rather than as part of an overall assessment of the
distress in the financial system. Capital injections were often not accompanied by an
assessment of bank viability or by restructuring plans. Moreover, the injection of preferred
shares in distressed institutions, while giving the authorities some upside benefit should the
institutions recover, did not give governments a way to control or influence the bank’s use of
public money.
26. To mitigate the risk of an intensification of the crisis, G-20 members should take
immediate action to contain further banking sector deterioration. Specifically, most
national programs contain no systematic assessment of bank viability or restructuring plan.
Such an assessment would include an evaluation of the losses in the banks and also require
an agreed-on restructuring plan designed to return viable banks to profitability. Such a plan
would have to include elements ensuring that bank restructuring is adequate and that future
capital injections by the public sector would not be required. The absence of credible
valuations of distressed assets, particularly the structured products, together with the
projections of expected losses from the deepening global economic slowdown remain
unaddressed. Moreover, programs generally lack some conditionality and accountability for
the use of public money.
V. RECOMMENDATIONS
27. The need for reinforcing stabilization policies is evident. The continued
weaknesses and disruption in financial markets illustrates a lack of confidence in the viability
of the major banks, while the deterioration in global economic conditions clearly suggests
14. 14
even more pressure on balance sheets has to be expected. The recent steps by the
United States to subject banks to uniform stress tests, capital assistance, and restructuring,
with a program for removing distressed assets are a welcome step. The U.K. program for
providing guarantees and removing assets from banks’ balance sheets is also an important
move in the right direction.
28. Action is still needed, however, to begin the process of restructuring banking
systems to avoid even more serious economic downturn. Unless banks’ balance sheets are
quickly cleansed and banks restructured, more serious outcomes can easily be envisaged.
This further downside risk is exacerbated by both the size and complexity of the institutions
and the complexity of the financial instruments.
29. A key priority should be the development and early implementation of a
comprehensive crisis management strategy that does not shrink from government
takeovers of nonviable institutions. Such a strategy must include an evaluation of the
viability of financial institutions, a plan to develop and implement bank restructuring
measures, appropriate support for the creditors of intervened institutions to maintain
confidence in the financial system, and the appropriate institutional framework. Such a
program would include the following elements:
• The cross-border nature of crisis containment must be directly addressed.
Mechanisms for coordinating restructuring policies are needed if the resolution of
cross-border institutions can be accomplished without creating arbitrage
opportunities. Agreement on methodologies for valuing toxic assets, diagnosing the
viability of institutions. and restructuring policies is particularly important in regions
where cross-border banks are significant. New mechanisms may be needed to share
experiences and coordinate actions.
• A comprehensive diagnosis of the financial institution soundness and capitalization
needs. Losses in the banking portfolio would be identified based on a forward-
looking evaluation. Such a diagnosis should be based on a consistent methodology for
valuing hard-to-value assets and sufficiently stressed assumptions concerning the
future growth of economic sectors. Once completed, institutions must be categorized
as sound, undercapitalized but viable, or insolvent.
• A restructuring strategy must be developed for undercapitalized banks, based on
the diagnosis. A strategy for each bank deemed to be viable and facing capital
deficiencies should be agreed on between supervisors and shareholders. Such strategy
should include a monitorable, time-based restructuring plan to bring bank capital to
minimum acceptable levels.
15. 15
Toxic assets must be neutralized A methodology on valuing toxic assets must be
established. 10 Once valued, such assets must be removed from banks’ balance
sheets or given government guarantees that put a floor on future losses. Removal
of such assets will provide clarity concerning bank balance sheets while
guarantees may entail a smaller upfront cash outlay.
A public sector recapitalization program should be established with clear
rules governing the conversion of preferred shares into ordinary shares.
Private sources of capital are scarce and when shareholders are unable to meet
prudential requirements, banks should have access to public recapitalization
programs. The program must include clearly defined conditions and restrictions
for participation in the program.
Recapitalization must be accompanied by appropriate public oversight. This
will need to include well-established conditions for the conversion of preferred
shares to ordinary shares if a bank fails to meet the agreed-on monitorable targets
specified in the restructuring plan.
• The institutional framework for public holdings of banks must be established. If
government ownership becomes substantial, an institutional framework, which is
independent of inappropriate political influence, should be established to manage
government shares. A strategy for resolving each bank must be developed including a
reasonable timeline for returning viable banks to private ownership. A bank holding
company, agency or supervisory unit responsible for monitoring the implementation
of restructuring plans and monitoring the health of publicly owned banks should be
considered. 11
• Nonviable financial institutions need to be resolved promptly. Such resolution may
entail restructuring, downsizing and possibly closure in a way that does not
jeopardize system-wide financial stability. If creditors are fully protected, the banking
authorities will have greater options to seek merger with viable institutions, create
new, viable banks, or sell assets and liabilities to viable banks. If creditors are not
protected, the imposition of losses on creditors must be undertaken with extreme
caution.
10
Authorities can use come combination of valuing them using current market indices or based on the net
present value of future income streams. For cross border firms, however, the valuation methodology must be
agreed on by all relevant regulatory bodies.
11
A well-known example is the Bank Support Authority in Sweden established in 1993. The authority managed
government support of four large nationalized banks. It conducted due diligence on NPLs to determine the size
of recapitalization.
16. 16
Box 1. Past and Current Crises—Stylized Facts
Historically, housing and credit booms fomented major crises, followed by severe unwinding, with lasting scars
on the real economy.
Credit build up and crunch
Financial crises were often precipitated by a build-up of credit. A new IMF database 12 demonstrates that credit
booms 13 took place in 27 percent of 20 large financial crises. 14 For these 20 crises, private credit to GDP
expanded annually by 9.4 percent in the three years prior to the crisis. In the mature markets, financial
crisis/stress episodes were preceded by an average 39 percent five-year cumulative increase in private credit-to-
GDP ratio (see table). The build-ups were even larger in the major emerging market. Crises typically caused a
severe unwinding, which took an average of 5.7 years for the mature economies. The peak-to-trough fall of
private credit to GDP ratio was on average 38 percent.
A credit boom was also a major contributor to the current crisis. For example, the United Kingdom showed a
35 percent increase in bank credit-to-GDP ratio in the period leading up to the crisis; the recorded increase in
bank credit to GDP in the United States was only 17 percent reflecting the fact that much of the increase
occurred off balance sheet through securitized markets, and flow-of-funds data show a much larger build up of
household liabilities. The unwinding has commenced and total credit to GDP in the advanced economies
appears to be falling faster than in past crises.
Asset booms and bust
Credit booms were often closely linked to asset bubbles that were followed by a credit and asset price bust. The
financial crises in mature markets were preceded by an average 90 percent cumulative rise in housing price in
the five-years prior to the crisis, and followed by 24 percent peak-to-trough decline, which lasted for 4.5 years.
Crises have also been associated with stock market bubbles, although these have been shorter and less severe
than crises associated with a collapse in housing prices. 15
Contagion
Crises were often associated with some degree of cross-border financial contagion, but no previous crisis has
exhibited the current global synchronization. Current G-20 equity prices correlations have risen to around 0.9,
roughly twice their norm. The current episode is also unusual in the degree of commonality of banking system
problems.
Crisis outcome
Crises led to output loss and fiscal costs. The peak-to-trough decline in real GDP averaged 4 percent for the
mature markets and took 1.7 years on average to reach the trough. The average fiscal cost averaged 4.9 percent
of GDP.
12
Luc Laeven and Fabien Valencia, 2008, “Systemic Banking Crisis: A New Database,” IMF Working Paper (WP/08/224).
13
Defined as over 30 percent, three-year pre-crisis cumulative growth of credit over GDP ratio.
14
Finland 1991, Norway 1991, Sweden 1991, Japan 1997 (Mature markets); Brazil 1, Brazil 2, Colombia, Colombia 2, Chile, Mexico,
Czech, Russia, Turkey, Latvia, Lithuania, Bulgaria, Korea, Indonesia, Malaysia, Philippines, and Thailand (EMs).
15
The link between equity price inflation and a financial crisis is far weaker than the housing price.
17. 17
Build up and unfolding of financial crisis
Ex-ante Crisis severity -- initial imbalance and need for emergency liquidity
Asset price build up Credit build up 1/ Contagion Size of Liquidity
Equity affected
banks 4/ support 5/
House prices 1/ Equity prices 2/ Credit/GDP(%) Correlation3/
Finland, Sep 1991 42.8 34.2 48.7 0.26 0.1 5.5
Sweden, Sep 1991 83.2 34.3 54.8 0.26 0.7 9.4
Norway, Sep 1991 95.8 108.8 67.6 0.26 0.4 6.2
Japan, Nov 1997 172.0 11.3 8.8 0.54 31.0 0.4
United Kingdom, early 1990s 112.2 25.6 44.2 0.52 6.9 -
United States, early 1990s 36.5 12.2 12.4 0.77 19.3 0.2
Korea, Aug 1997 -0.6 16.5 13 0.34 0.7 28.9
Thailand, Jul 1997 28.3 24.1 55.2 0.33 0.7 25.9
Indonesia, Nov 1997 - 35.1 26.3 0.54 0.3 53.8
Mexico, Dec 1994 - 77.5 135.2 0.23 0.5 67.6
Turkey, Nov 2000 - 10.3 2.8 0.64 0.2 22.2
Average - all 71.3 35.4 42.6 0.43 5.5 22.0
Average -MM 90.4 37.7 39.4 0.44 9.7 4.3
Average - EM 13.9 32.7 46.5 0.42 0.5 39.7
Current crisis
United Kingdom 48.3 18.4 34.7 0.92 11.0 -
United States 72.3 26.4 17 0.92 18.6 6.1
Germany 0.7 38.8 -9.4 0.92 8.0 14.9
Switerland 14.0 26.7 11.9 0.92 0.5 5
Ex-post Crisis severity -- crisis outcome
Asset price decline 6/ Credit crunch 6/ Output loss 7/ Fiscal cost for recap 8/
House prices Equity prices Credit/GDP Gross Net
-41.8 ( 10 ) -13.2 ( 3.3 ) 8.6 6.9
Finland, Sep 1991 -22.9 ( 4.5 ) -29.2 ( 0.7
)
Sweden, Sep 1991 -20.2 ( 2 ) -18.9 ( 0.5
) -41.1 ( 5.8 ) -4.8 ( 2.8 ) 1.85 1.49
Norway, Sep 1991 -30.1 ( 5 ) -27.6 ( 1.3
) -20.1 ( 3.3 ) -0.1 ( 0.3 ) 2.61 0.61
Japan, Nov 1997 -54.6 ( 11 ) -21.2 ( 0.5
) -49.8 ( 6.8 ) -2.5 ( 1.3 ) 6.61 6.52
United Kingdom, early 1990s -12.6 ( 3.8 ) -8.6 ( 0.3
) -7.5 ( 2.8 ) -2.6 ( 2 ) -- --
United States, early 1990s -2.8 ( 1 ) -2.5 ( 0.2
) -23.4 ( 5.5 ) -1.3 ( 0.5 ) -- --
Korea, Aug 1997 -12.9 ( 1.3 ) -40.1 ( 0.5
) -( -) -8 ( 0.8 ) 19.3 15.8
Thailand, Jul 1997 -25.5 ( 1.8 ) -41.7 ( 0.4
) -37.1 ( 4.3 ) -14 ( 1.3 ) 18.8 18.8
Indonesia, Nov 1997 - -44.6 ( 0.5
) -68.2 ( 2.8 ) -16.7 ( 0.3 )
Mexico, Dec 1994 - -43.5 ( 0.4
) -54.4 ( 2) -8.5 ( 1 ) 3.8 2.5
Turkey, Nov 2000 - -28.9 ( 0.2
) -38.1 ( 1.5 ) -7.8 ( 1.3 ) 24.5 23.2
Average - all -22.7 3.8 -27.9 ( 0.5
) -38.2 4.5 -7.2 ( 1.3 ) 10.8 9.5
Average -MM -23.9 4.5 -18.0 ( 0.6
) -30.6 5.7 -4.1 ( 1.7 ) 4.9 3.9
Average - EM -19.2 1.5 -39.76 ( 0.4
) -49.45 2.6 -11 ( 0.9 ) 16.6 15.1
Current crisis (change up to date)
United Kingdom -19.0 ( 1.3 ) -37.7 ( 1.6 )
United States -20.3 ( 2.5 ) -38.2 ( 1.2 )
Germany -( -) -45.0 ( 1.2 )
Switerland 5.8 ( -) -42.2 ( 1.6 )
Sources: IMF databases (IFS, Lavean and Valencia (2008)), Haver Analytics, Bank of Finland
1/ 5 year cumulative change to the peak before the start of the crisis; for Japan and Norway the peak occurred substantially earlier than the crisis (6 year for Japan, 4
year for Norway)
2/ Trough-to-peak increase; the peaks associated with the crisis generally occur before the crisis date.
3/ Average correlation of G-20 equity price over 12 month rolling-forward window of monthly average stock price
4/ Percent, ratio of banking system private credit (in countries affected) to G-20 GDP
5/ Ratio of central bank credits to Deposit Monetary Banks and total bank deposits; maximum ratio within three years from the start of the crisis
6/ cumulative peak-to-trough decline; figures in parenthisis are years to reach the trough
7/ Peak-to-trough decline in seasonally adjusted quarterly real GDP levels; figures in parenthisis are years to reach the trough
8/ Percent; average annual fiscal cost over GDP during five years since the crisis