IMF / GLOBAL FINANCIAL STABILITY REPORT

The IMF’s latest Global Financial Stability Report analyzes the growth in shadow banking in recent years in both advanced and emerging market economies and the risks involved. IMF

• Categories: News & Features / News Stories / Unifeed
• Video Length: 00:01:27
• Production Date: 2 October 2014
• Asset Language: Original
• Corporate Name: INTERNATIONAL MONETARY FUND - IMF
• Subject Topical: ECONOMICS; ECONOMIC CONDITIONS
• MAMS Id: 1191149

Description

STORY: IMF / GLOBAL FINANCIAL STABILITY REPORT
TRT: 1:27
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS

DATELINE: 1 OCTOBER 2014, WASHINGTON DC

Shotlist

RECENT - WASHINGTON DC

1. Wide shot, exterior, IMF

1 OCTOBER 2014, WASHINGTON DC

2. SOUNDBITE (English) Gaston Gelos, Division Chief, Monetary and Capital Market Department, IMF:
“Shadow banking is usually not shady but it still often operates in the shadows, in the sense that we lack data about it. An international effort through the Financial Stability Board is making some encouraging progress in data collection. Still, we are worried about what we do not know.”

RECENT - WASHINGTON DC

3. Wide shot, exterior, IMF

1 OCTOBER 2014, WASHINGTON DC

4. SOUNDBITE (English) Gaston Gelos, Division Chief, Monetary and Capital Market Department, IMF:
“In our analysis we find that one of the strongest links is between board independence and lower risk taking. In addition, although the level of compensation is not consistently associated with the degree of risk taking, its composition is: a larger share of long-term pay for CEOs is related to lower risk in banks. The existence of risk committees is also associated with lower risk taking.”

RECENT - WASHINGTON DC

5. Wide shot, exterior, IMF

1 OCTOBER 2014, WASHINGTON DC

6. SOUNDBITE (English) Gaston Gelos, Division Chief, Monetary and Capital Market Department, IMF:
“In terms of the size of shadow banking system around the world, it’s roughly estimated over 70 trillion dollars. So, it’s quite large.”

Storyline

Shadow banking is both a boon and a bane for countries, and to reap its benefits, policymakers should minimize the risks it poses to the overall financial system.
Shadow banks act similarly to regular banks by taking money from investors and lending it to borrowers, but are not governed by the same rules or supervised. Shadow banks can include financial institutions such as money market mutual funds, hedge funds, finance companies, and broker/dealers, among others.

The IMF’s latest Global Financial Stability Report analyzes the growth in shadow banking in recent years in both advanced and emerging market economies and the risks involved.

The report found that the same factors often seem to drive the growth of shadow banking across countries. Shadow banking tends to take off when strict banking regulations are in place, which leads to circumvention of regulations. It also grows when real interest rates and yield spreads are low and investors are searching for higher returns, and when there is a large institutional demand for ‘safe assets,’ for example from insurance companies and pension funds.

“In terms of the size of shadow banking system around the world, it’s roughly estimated over 70 trillion dollars. So, it’s quite large,” says Gaston Gelos, chief of the Global Financial Analysis Division at the IMF.

Shadow banking can be beneficial. It broadens access to credit, especially in emerging market economies, where traditional banking networks often face capacity or regulatory constraints, such as restrictions on lending or on interest rates.

The IMF’s report calls for countries to monitor shadow banking as part of their policies designed to keep the overall financial system safe. To assess risks properly, both supervisory authorities and statistical agencies need to provide much more detailed data on shadow banking.

“Shadow banking is usually not shady but it still often operates in the shadows, in the sense that we lack data about it. An international effort through the Financial Stability Board is making some encouraging progress in data collection. Still, we are worried about what we do not know,” Gelos said.

The other chapter of the latest Global Financial Stability Report analyzes the excessive risk taking by banks that contributed to the global financial crisis, and proposes reforms to help prevent future abuses given the huge costs to society, both economic and social.

The IMF analysis provides new research into the role of governance and executive pay. This research is necessary to help shape the reforms to strengthen regulations, realign incentives, and foster stronger risk management and oversight in banks.

The report studies the association between risk taking, governance, and executive pay based on a large sample of banks around the world.

“In our analysis we find that one of the strongest links is between board independence and lower risk taking. In addition, although the level of compensation is not consistently associated with the degree of risk taking, its composition is: a larger share of long-term pay for CEOs is related to lower risk in banks. The existence of risk committees is also associated with lower risk taking,” Gelos said.