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STORY: IMF / GLOBAL FINANCIAL STABILITY REPORT PRESSER
TRT: 1.35
SOURCE: UNTV
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS
DATELINE; 17 APRIL 2013, NEW YORK
1. Wide shot, officials at opening of news conference to present Global Financial Stability Report
2. Med shot, journalists
3. SOUNDBITE (English) Jose Viñals, Financial Counsellor, IMF:
“The report concludes that improved financial markets and the recent gains to financial stability will not be sustained, and, indeed, new threats are likely to emerge unless policymakers address some key underlying vulnerabilities.”
4. Various shots, journalists
5. SOUNDBITE (English) Jose Viñals, Financial Counsellor, IMF:
“It is important to have a fair-burden sharing of the adjustment between the public sector and the private sector so that the taxpayers do not end up paying for mistakes that were made elsewhere, insofar as this can be avoided. And this is why the bailing in has a reason.”
6. Cutaway, IMF officials
7. Cutaway, journalist asking a question
8. SOUNDBITE (English) Jose Viñals, Financial Counsellor, IMF:
“Overall, on the whole, Italian banks have sufficient capital to withstand adverse scenarios which are quite adverse. And that the capital buffers that they have would be enough to weather these very severe storms. It is true that after the storm, the buffers will be gone, but that the buffers will be there to help the banks during this storm.”
11. Wide shot, journalists
12. Wide shot, end of briefing
The global financial system is far more stable than it was six months ago, but a number of challenges remain, according the the International Monetary Fund’s latest Global Financial Stability Report.
“The report concludes that improved financial markets and the recent gains to financial stability will not be sustained, and, indeed, new threats are likely to emerge unless policymakers address some key underlying vulnerabilities,” said José Viñals, Financial Counsellor and head of the IMF’s Monetary and Capital Markets Department, which produced the report.
The report focuses on two persistent old risks, which are the legacy of the crisis. In spite of the recent improvements in market conditions, credit is not adequately flowing in the euro area periphery.
• Small and medium-sized companies, which are the backbone of employment, are particularly affected by the increased cost and limited supply of bank credit.
• The periphery corporate sector is also facing a large debt overhang, which was built up before the crisis. The report identifies a weak tail of listed companies in the periphery that need to reduce their debt over time. The required debt reduction by these companies accounts for a fifth of the total debt of listed periphery corporates analyzed in the GFSR. This poses a challenge to their economies and financial stability.
Bank balance sheet repair has not been completed and progress has been uneven, according to the IMF. Banking systems around the world are in different stages of repair.
While calling Cyprus a “very special case” that shouldn’t serve as a model for future measures, Viñals suggested Euro area countries need to come up with effective – and fair – policies.
“It is important to have a fair-burden sharing of the adjustment between the public sector and the private sector so that the taxpayers do not end up paying for mistakes that were made elsewhere, insofar as this can be avoided. And this is why the bailing in has a reason.”
The report shows that the process is largely completed in the United States, but not so in Europe. Many banks in the euro area periphery countries still need to make further progress in strengthening their balance sheets. And important banks in the core countries are still too dependent on wholesale funding markets.
Asked about the state of Italian banks, Viñals replied:
“Overall, on the whole, Italian banks have sufficient capital to withstand adverse scenarios which are quite adverse. And that the capital buffers that they have would be enough to weather these very severe storms. It is true that after the storm, the buffers will be gone, but that the buffers will be there to help the banks during this storm.”
Viñals added that Italy has taken important steps and is “doing the right things.”
The report also identifies new risks linked to easy monetary policies that were put in place to fight the crisis. These policies have been essential to support the economy. But their use over a prolonged period may create side effects, such as excessive risk taking and leverage, and asset bubbles.
The IMF said there are signs of new risks in the United Sates. U.S. corporate fundamentals are strong, and leverage is in line with typical historical patterns. But corporate debt underwriting standards are weakening rapidly. In addition, continued low interest rates are prompting some pension funds and insurance companies to take further risks to close their widening funding gaps.
Also, easy money in advanced economies is spilling over to emerging markets. Borrowing on international markets by emerging market corporates has been growing at a record pace, exposing them to foreign currency risks and rising leverage. This makes emerging markets more sensitive to volatile capital flows.
Above all, the eventual unwinding of prolonged monetary easing in the United States could expose these vulnerabilities and destabilize credit markets.
The report calls for stronger policies to reduce financial fragmentation in the euro area, in order to help unblock the flow of credit to the economy and increase the resilience of the currency union.
Policymakers can achieve this by completing the banking sector repair and by moving steadfastly towards full-fledged banking union. Also, the flow of credit to solvent small and medium-sized enterprises needs to be improved. And private debt overhangs need to be addressed to complement the clean-up of bank balance sheets.
The IMF also called for renewed political commitment at the global and national level to complete and implement the financial regulatory reform agenda. Without greater urgency toward international cooperation and comprehensive bank restructuring, weak bank balance sheets will continue to weigh on the recovery and pose ongoing risks to global stability, according to the IMF.
Policymakers must also address new risks:
In the United States, policymakers need to keep banks safe. As for nonbanks, they must be vigilant and proactive by restraining too rapid increases in leverage and by encouraging prudent underwriting standards. All this requires appropriate microprudential and macroprudential policies.
Emerging market economies must keep the guard up against deteriorating bank asset quality and disruptive short-term capital flows. At the same time, prudential policies should be deployed to ensure adequate buffers in the financial system and to prevent the excessive build-up of leverage and asset price bubbles.
