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Financial stability challenges in a low-growth, low-rate era

Financial stability challenges in a low-growth, low-rate era
Financial stability challenges in a low-growth, low-rate era
Chapter 1 finds that short-term risks to global financial stability have abated since April 2016, but that medium-term risks continue to build. Financial institutions in advanced economies face a number of cyclical and structural challenges and need to adapt to low growth and low interest rates, as well as to an evolving market and regulatory environment. Weak profitability could erode banks’ buffers over time and undermine their ability to support growth. A cyclical recovery will not resolve the problem of low profitability. More deep-rooted reforms and systemic management are needed, especially for European banks. The solvency of many life insurance companies and pension funds is threatened by a prolonged period of low interest rates. Corporate leverage in emerging market economies remains elevated in some countries, but the current favorable external environment presents an opportunity for overly indebted firms to restructure their balance sheets. The political climate is unsettled in many countries. A lack of income growth and a rise in inequality have opened the door for populist, inward-looking policies. These factors make it even harder to tackle legacy problems and further expose economies and markets to shocks. A potent and more balanced policy mix is needed to deliver a stronger path for growth and financial stability, and avoid slipping into a state of financial and economic stagnation.
International Monetary Fund
Bakoush, Mohamed
09d43d33-abd2-4db0-a26a-2f5831ea0a01
Bakoush, Mohamed
09d43d33-abd2-4db0-a26a-2f5831ea0a01

Bakoush, Mohamed (2016) Financial stability challenges in a low-growth, low-rate era. In, Global Financial Stability Report, October 2016. International Monetary Fund.

Record type: Book Section

Abstract

Chapter 1 finds that short-term risks to global financial stability have abated since April 2016, but that medium-term risks continue to build. Financial institutions in advanced economies face a number of cyclical and structural challenges and need to adapt to low growth and low interest rates, as well as to an evolving market and regulatory environment. Weak profitability could erode banks’ buffers over time and undermine their ability to support growth. A cyclical recovery will not resolve the problem of low profitability. More deep-rooted reforms and systemic management are needed, especially for European banks. The solvency of many life insurance companies and pension funds is threatened by a prolonged period of low interest rates. Corporate leverage in emerging market economies remains elevated in some countries, but the current favorable external environment presents an opportunity for overly indebted firms to restructure their balance sheets. The political climate is unsettled in many countries. A lack of income growth and a rise in inequality have opened the door for populist, inward-looking policies. These factors make it even harder to tackle legacy problems and further expose economies and markets to shocks. A potent and more balanced policy mix is needed to deliver a stronger path for growth and financial stability, and avoid slipping into a state of financial and economic stagnation.

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Published date: 1 October 2016

Identifiers

Local EPrints ID: 434103
URI: http://eprints.soton.ac.uk/id/eprint/434103
PURE UUID: f8bbdb03-b672-42db-a30b-b7de4b867d67
ORCID for Mohamed Bakoush: ORCID iD orcid.org/0000-0001-9624-9828

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Date deposited: 12 Sep 2019 16:30
Last modified: 14 Aug 2020 01:52

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