logo
  Join        Login             Stock Quote

Global Financial Stability: What’s Still To Be Done?

 April 18, 2012 03:01 PM


By José Viñals

The quest for lasting financial stability is still fraught with risks. The latest Global Financial Stability Report has two key messages: policy actions have brought gains to global financial stability since our September report; but current policy efforts are not enough to achieve lasting stability, both in Europe and some other advanced economies, in particular the United States and Japan.

Much has been done

In recent months, important and unprecedented policy steps have been taken to quell the crisis in the euro area. At the national level, stronger policies are being put in place in Italy and Spain; a new agreement has been reached on Greece; and Ireland and Portugal are making good progress in implementing their respective programs. Importantly, the European Central Bank's decisive actions have supported bank liquidity and eased funding strains, while banks are reinforcing their capital positions under the guidance of the European Banking Authority. Finally, steps have been taken to enhance economic governance, promote fiscal discipline, and buttress the "firewall" at the euro area level.

[Related -Chart Says This Retailer's Comeback Isn't Finished]

These actions and policies have broughtmuch-needed relief to financial markets since the peak of the crisis late last year.

But it is too soon to say that we have exited the crisis, because lasting stability is not yet ensured. Indeed, we have been reminded in recent weeks that sentiment can quickly shift and rekindle sovereign financing stress, leaving many sovereigns and banking systems caught in a vicious circle.

[Related -ETF Performance Review: Major Asset Classes | 19 Dec 2014]

Furthermore, pressures on European banks remain from high rollover requirements, weak growth, along with the need to strengthen balance sheets, including by shrinking. Some deleveraging is healthy—when banks increase capital, cut noncore activities, and reduce reliance on wholesale funding that results in more robust balance sheets.

But like Goldilocks, the amount, pace, and location of deleveraging must be just right at the aggregate level—not too large, too fast, or too concentrated in one region or country.

So far current policies have prevented a generalized "credit crunch", but we still anticipate a considerable squeeze on credit which will impede growth. We estimate that large European Union-based banks could shrink their combined balance sheet by as much as $2.6 trillion—or about 7 percent of their total assets—by the end of 2013, with about a quarter of that shrinkage leading to a cutback in lending. Overall, we estimate that deleveraging by EU banks could reduce the supply of credit in the euro area by about 1.7 percent over two years.


Next Page >>12
iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageChart Says This Retailer's Comeback Isn't Finished

One of the surprises, at least on the surface, of the market's recent swoon was the outperformance of read on...

article imageETF Performance Review: Major Asset Classes | 19 Dec 2014

It’s all about real estate investment trusts (REITs) these days when it comes to bullish performance among read on...

article imageOil and Global Stock Markets Rebounding Sharply

So far so good on our expectation of a 4 to 5% pullback and then a resumption of the bull read on...

article imageGrading the FOMC

Love its members or loathe them, you have to admire the gradual impact the policy-making committee has had read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center

Related Articles:

Oil and Global Stock Markets Rebounding Sharply
More Articles on: Finance



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.