This IMF working paper looks at the topic of financial stability reports:
Summary: The global financial crisis has renewed policymakers’ interest in improving the policy framework for financial stability, and an open question is to what extent and in what form should financial stability reports be part of it. We examine the recent experience with central banks’ financial stability reports, and find—despite some progress in recent years—that forward-looking perspective and analysis of financial interconnectedness are often lacking. We also find that higher-quality reports tend to be associated with more stable financial environments. However, there is only a weak empirical link between financial stability report publication per se and financial stability. This suggests room for improvement in terms of the quality of financial stability reports.
8 replies on “Financial Stability Reports:What Are They Good For?”
The Central Bank of Ireland’s ‘Financial Stability Reports’ in 2005/6 had the chutzpah to include ‘bank stress tests’. The stress tests were improperly designed and executed. This type of nonsense caused grave harm to Ireland’s economy. Plenty of us were bothered about the property bubble, but only the CB/FR had privileged info on bank exposure (stress tests were joint exercise between FR and CB)
I, and others, were fool enough to trust the _hundreds_ of staff working in the CB/FR (some ppl involved in the above since promoted).
Ireland had a vanilla property bubble,floated by influx of foreign liquidity – that should have been quite obvious to those with privileged access to the figures. Yes doing Fin Stab reports for more complex markets, with opaque derivatives is a serious challenge – but first off we need better explanation of how an outfit like the CB/FR missed a vanilla bubble, that used 19th century financial instruments.
NTMA have been disastrous in their handling of our financial affairs with their 6%. The Troika have been even more disastrous but even from them we have had breakout attempts by the IMF to disatnce themselves from the mess. Its likely the Troika will report we’re doin great with their latest fantasy over the coming days. The markets price one form of stability report in the form of junk bond status and ratings drop. Basically the term ‘financial stability report’ has been adulterated into a misnomer, its current meaning is, ‘if the banks are getting what they want, this is financial stability; otherwise, this is not financial stability’..Oh for the days of yore, when true capitalism reigned and socialism for the banks and the EMU had not yet built its Berlin walls!
title of the post sounds like a hint and I have the song in my head now.
From the Nyberg report
Internally, senior management in the DoF was updated regularly on housing developments (the main focus being on macroeconomic implications of a fall in housing output) and credit growth. Concerns with respect to credit growth date back to 2004 and subsequent updates noted credit growth was unsustainable, fast approaching the highest in the euro area, and driven by property market expansion. It was further noted that the construction sector’s increasing share of credit made it vulnerable to a property downturn and that developments in house prices, relative to incomes and yields, could indicate that they were out of kilter with fundamentals. However, referring to the CB’s 2005 Financial Stability Report, it was concluded in a briefing to the Minister that “all evidence is that systemic risk … to the financial system from a downturn in the property market is relatively limited”. While concern was also expressed at official level about the impact on GDP and the budget balance of a fall in housing output towards a medium-term sustainable level, such a fall was viewed as a necessary adjustment in the housing market.
http://www.bankinginquiry.gov.ie/
These reports are little more than propaganda articles for whoever commissions them. If you want to understand these reports, you need to read up on similar reports that came out of the Soviet Union–which ran its economy not too dissimilarly to how we are currently running ours today (into the ground).
The recurring meme about the “structual defecit” was on the VB show tonight.
The 40 billion or so bank thingy + the pension fund thrown at the problem was mentioned but we still have a structual defecit apparently……
But there is nothing wrong with a defecit when we owe it to yourself – its just paper like all money – but its safer as it has no leverage.
But the interest on our sov debt albeit down slightly this year is being drained from a economy that is not producing credit as it is chiefly held by external holders – a monumental scandal , a heist of the commons.
And the bank bonds that should have been left with their rubbish mortgage paper in a all cash market gets away with capital & interest intact……….
Beyond belief really.
If the guarrenteed credit deposits became goverment money rather then still backing hyper inflated credit “assets” and the private debts became null & void we would not be having this discussion.
Houses would be 10 Grand a pop and a huge amount of money would be set free to increase the countries real capital base.
Why do Irish economists have a credit fetish for dead assets ?
@Liam
Is the song you’re thinking of the Springsteen smash “Financial Stability Reports!”
Might Philip be reminding us of the IMF FSRs in the mid-2000s which praised our model economy and ignored the credit/housing bubble.
@Jagdip – Edwin Star. Could be adapted for many features of current financial system.