lessons from the crisis for international financial surveillance dimitri g demekas assistant...
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Lessons from the Crisis Lessons from the Crisis for International Financial Surveillancefor International Financial Surveillance
Dimitri G DemekasDimitri G DemekasAssistant DirectorAssistant Director
Monetary & Capital Markets Department, IMFMonetary & Capital Markets Department, IMF
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Lessons from the crisisLessons from the crisis What have SE European countries learned?What have SE European countries learned?
International financial surveillanceInternational financial surveillance What has the IMF learned? What has the IMF learned?
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Lessons from the crisisLessons from the crisis Financial regulationFinancial regulation Macroeconomic policiesMacroeconomic policies Global financial architectureGlobal financial architecture
Initial Lessons from the CrisisInitial Lessons from the Crisis((http://
www.imf.org/external/pp/longres.aspx?id=4315))Lessons from the Crisis for Future RegulationLessons from the Crisis for Future Regulation
((http://www.imf.org/external/np/pp/eng/2009/020409.pdf))Lessons of the Crisis for the Global Lessons of the Crisis for the Global ArchitectureArchitecture
((http://www.imf.org/external/np/pp/eng/2009/021809.pdf))Lessons of the Global Crisis for Macroeconomic Lessons of the Global Crisis for Macroeconomic PolicyPolicy
((http://www.imf.org/external/np/pp/eng/2009/021909.pdf))
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Lessons from the crisis ILessons from the crisis I
Financial regulationFinancial regulation Perimeter (regulation, information)Perimeter (regulation, information) Procyclicality (accounting, regulation)Procyclicality (accounting, regulation) Prudential rules (capital requirements, liquidity, Prudential rules (capital requirements, liquidity,
risk management, macro-prudential factors)risk management, macro-prudential factors) Corporate governance practices (information Corporate governance practices (information
disclosure, executive compensation)disclosure, executive compensation)
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Lessons from the crisis IILessons from the crisis II
Macroeconomic policyMacroeconomic policy BubblesBubbles LeverageLeverage Countercyclical policies: macro only or Countercyclical policies: macro only or
macro-and-prudential?macro-and-prudential?
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Lessons from the crisis IIILessons from the crisis III
Global financial architectureGlobal financial architecture Cooperation in regulation, bank resolution, Cooperation in regulation, bank resolution,
systemic liquiditysystemic liquidity Improved surveillance, especially of Improved surveillance, especially of
systemically important countriessystemically important countries IMF governance and mandateIMF governance and mandate
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What lessons matter for SE Europe?What lessons matter for SE Europe?What have we learned from SE Europe?What have we learned from SE Europe?
Procyclicality in policy and regulationProcyclicality in policy and regulation Capital requirements, liquidity rulesCapital requirements, liquidity rules The importance of leverageThe importance of leverage Regional contagion, regional Regional contagion, regional
cooperationcooperation
International financial surveillance:International financial surveillance:What has the IMF learned?What has the IMF learned?
IMF surveillance instruments:IMF surveillance instruments: Multilateral surveillance (WEO, GFSR)Multilateral surveillance (WEO, GFSR) Bilateral surveillance (Article IV consultation)Bilateral surveillance (Article IV consultation) Financial Sector Assessment Program Financial Sector Assessment Program (FSAP)(FSAP)
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Better tools, greater flexibilityBetter tools, greater flexibility Greater focus on crisis preparedness Greater focus on crisis preparedness
crisis management frameworkscrisis management frameworks Improved stress testing techniquesImproved stress testing techniques
Emphasize data gaps/caveatsEmphasize data gaps/caveats Focus on liquidity risksFocus on liquidity risks Capture cross-market, cross-country exposureCapture cross-market, cross-country exposure
More flexible FSAPsMore flexible FSAPs More focused “modular” stability assessments, More focused “modular” stability assessments,
higher frequencyhigher frequency
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New forms of IMF engagementNew forms of IMF engagement
European Bank Coordination InitiativeEuropean Bank Coordination Initiative Cooperation with FSB and financial Cooperation with FSB and financial
sector standard-setters (EWE, revisions sector standard-setters (EWE, revisions to standards)to standards)
Input to FSB and G-20 “peer reviews”Input to FSB and G-20 “peer reviews” New forms of multilateralism?New forms of multilateralism?
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Standard capital inflow surgeStandard capital inflow surgefinancing an investment and growth boom…financing an investment and growth boom…
Capital inflows ($ million), emerging Europe, 2003-2007
0
50000
100000
150000
200000
250000
300000
2003 2004 2005 2006 2007
Bank loans
Portfolio investment: bonds
Portfolio investment: equity
Direct investment
Source: IMF, International Financial Statistics
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……while macro policies were insufficiently while macro policies were insufficiently countercyclical…countercyclical…
Government Balance/GDP for Emerging Europe Countries
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
2000 2001 2002 2003 2004 2005 2006 2007 2008
(in percent)
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… … and prudential rules were procyclical.and prudential rules were procyclical.
Higher profitability: lower provisioning
Higher growth: lower provisioning
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The importance of capital and liquidity buffersThe importance of capital and liquidity buffers
Croatia’s “unorthodox” measures 2003-07Croatia’s “unorthodox” measures 2003-07 Marginal reserve requirement on foreign borrowing Marginal reserve requirement on foreign borrowing
by banks at 55% by banks at 55% Reserve requirement at 17%Reserve requirement at 17% Fx liquid asset requirement at 32%Fx liquid asset requirement at 32% Credit controlsCredit controls
……did not help slow credit growth, but did not help slow credit growth, but provided buffers when the crisis hitprovided buffers when the crisis hit
eliminated
reduced to 14%
reduced to 20%
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Regional aspects of the crisisRegional aspects of the crisis
TSI
T-Com
TMO 121212
0
10
20
30
40
50
60
70
80
90
100
ES
T
SV
K
B&
H
MN
E
LT
H
HR
V
AL
B
RO
M
CZ
E
HU
N
BG
R
SR
B
PO
L
LT
A
MK
D
UK
R
SV
N
RU
S
2000 2006
Source: European Bank for Reconstruction and Development; and IMF staff calculations.
CESE: Asset share of foreign-owned banks, in percent
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Share of Emerging Europe in total group assets and operating income
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
OTP RAIF ERST UNIC KBC ISP SG
AssetsOperating income
Source: Annual reports of banking groups. Societe Generale: Net banking income.
RAIF = Raiffeisen; ERST = Erste; UNIC = Unicredit; ISP = Intesa Sanpaolo; SG = Societe Generale
Regional aspects of the crisisRegional aspects of the crisis
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-25
-20
-15
-10
-5
0
5
10
15
20
25L
atv
ia
Se
rbia
Ro
ma
nia
Hu
ng
ary
Bo
sn
ia
Ru
ssia
Ukra
ine
Tu
rke
y
Po
lan
d
Be
laru
s
Esto
nia
Ma
ce
do
nia
Cro
atia
Mo
ldo
va
Bu
lga
ria
Lith
ua
nia
Mo
nte
ne
gro
Alb
an
ia -25
-20
-15
-10
-5
0
5
10
15
20
25
Source: BIS, Locational Banking Statistcs, Table 6a.
EBCI Countries
Changes in External Positions of Western Banks in Eastern European Countries (from September 2008 to March 2009; in percent) 1/
European Bank Coordination InitiativeEuropean Bank Coordination Initiative