News

IMF Pressing China to Disclose More Data on Currency Operations

By Lingling Wei
March 21, 2016, The Wall Street Journal

The International Monetary Fund is pressing China to disclose more information about its currency operations based on standards the Chinese central bank had pledged to follow, people familiar with the matter said, as Chinese authorities resort to more-discreet ways to support the yuan.

In recent months, the People’s Bank of China has turned to the derivatives market to help prop up the currency—a shift from its traditional approach of dipping into its dollar pile to buy yuan.

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Next Financial Crisis Could Overwhelm World's Defenses, IMF Says

By Andrew Mayeda
March 17, 2016, 
Bloomberg Business

The global financial safety net has become increasingly fragmented, making it harder to respond to crises in a world roiled by volatile capital flows, International Monetary Fund staffers warned.

Defenses haven’t kept up with the growth of external debt in recent years, the Washington-based fund said in a report released Thursday. As a result, a system-wide shock could overwhelm the world’s crisis resources, which include nations’ foreign-exchange reserves, central-bank swap lines, regional funds such as the euro area’s European Stability Mechanism, and the IMF itself, the lender said.

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High Levels of Bond Fund Leverage Alarms IMF

By Sophia Greene
February 7, 2016, Financial Times

The International Monetary Fund is calling for fund managers to be more transparent about the amount of leverage they use in bond mutual funds, amid concerns those levels might be high enough to cause a crash.

According to IMF research, bond funds have increased their use of derivatives significantly since the global financial crisis.

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Comment: The Specter of Risk in the Derivatives of Bond Mutual Funds

By Fabio Cortes
December 17, 2015, IMF blog

Current regulations only require U.S. and European bond mutual funds to disclose a limited amount of information about the risks they have taken using financial instruments called derivatives. This leaves investors and policymakers in the dark on a key issue for financial stability.  Our new research in the October 2015 Global Financial Stability Report looks at just how much is at stake. 

A number of large bond mutual funds use derivatives—contracts that permit investors to bet on the future direction of interest rates. However, unlike bonds, most derivatives only require a small deposit to make the investment, which amplifies their potential gains through leverage, or borrowed money. For this reason, leveraged investments are potentially more profitable, as the gains on invested capital can be larger. For the same reason, losses can be much larger.

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U.S. Should Toughen Bank Reforms, Says IMF

By Barney Jopson
July 7, 2015, Financial Times

The International Monetary Fund has called for the US to defend and strengthen its Dodd-Frank financial reforms, adding fuel to the intense debate over how to balance stability and growth on Wall Street.

In its first comprehensive assessment of the American financial system in five years, the IMF said the US needed to toughen regulation to ward off a repeat of the last financial crisis.

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Funds Managing $76 Trillion Draw IMF Scrutiny of Increased Risks

By Kasia Klimasinska
April 8, 2015, Bloomberg Business

Bond funds may be exposing customers and the financial system to more risk than some investors realize as money managers seek higher returns in less liquid assets, the International Monetary Fund said in a report recommending improved oversight.

“The role of fixed-income funds, which entail larger contagion risks than traditional equity investment, has expanded considerably,” the IMF said Wednesday in a chapter on asset managers in its latest Global Financial Stability Report.

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Hedge Hunters Double Default-Swaps as Views Split: China Credit

By Justina Lee and Lilian Karunungan
November 20, 2014, Bloomberg

Global investors have doubled holdings of contracts insuring China’s sovereign debt as its companies raise funds abroad and views diverge on the economy.

The net notional amount of credit-default swaps protecting against non-payment by the government reached a record $15.7 billion on Nov. 7, up from $8.1 billion a year earlier, Depository Trust & Clearing Corp. data show. Chinese companies boosted overseas bond offerings 65 percent to $308 billion in 2014. Alibaba Group Holdings Ltd. raised $8 billion in Asia’s largest dollar debt sale.

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Swaps Said to Be Losing Special U.S. Bankruptcy Status

By Jesse Hamilton and Silla Brush
Published October 3, 2014 Bloomberg

Firms holding swaps contracts with a bank filing for U.S. bankruptcy protection would have to wait at least 24 hours before demanding collateral under new practices that may be adopted by the industry this month.

The revision could make it easier for banks to satisfy government requirements for the “living wills” they must produce to show how they’d unwind their businesses in an orderly fashion if they veered toward collapse.

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IMF Slams Naked CDS Ban in Europe

By Louise Bowman
Published April 16, 2013 Euromoney

The IMF has released a damning report criticizing the European ban on purchases of naked sovereign CDS (SCDS). It not only questions the fundamental premise that CDS trading contributes to market volatility but asserts that even if it does there are more effective ways to mitigate this. “Whether SCDS markets propagate contagion is difficult to assess since the risks embedded in SCDS cannot be readily isolated from those in the financial system,” the report concludes. “However, SCDS markets do not appear to be more prone to high volatility than other financial markets. While there are some signs that SCDS overshoot their predicted value for vulnerable European countries during periods of stress, there is little evidence overall that such excessive increases in countries’ SCDS spreads cause higher sovereign funding costs.”

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EU Ban on Naked Sovereign Credit Default Swaps Unnecessary - IMF

By Daniel Bases
Published April 11, 2013 Reuters UK

The International Monetary fund said the European Union was moving in the wrong direction by banning the use of a hedging strategy related to sovereign credit default swaps.

In a report published on Thursday ahead of its annual meeting April 19-21, the IMF said the ban on so-called naked SCDS is not supported by any empirical evidence and could in fact lead to more instability in the financial markets.

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IMF Says Benefits of Financial Reform Outweigh Costs

By Alexandra Alper
Published September 11, 2012 Reuters

Tough new global financial rules will nudge up credit costs, but the slight drag they will place on major economies is worth it to achieve a more stable financial system, the International Monetary Fund said on Tuesday.

In a study examining the impact of global financial reform in Europe, Japan and the United States on credit pricing, the IMF concluded that average bank lending rates will rise 26 basis points in the United States, 17 basis points in Europe and 8 basis points in Japan over the long term in response to rising regulatory costs. A basis point is one hundredth of a percentage point

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Awash in Money and Piles of Debt

By Stella Dawson
April 23, 2012 Reuters

The amount of money thrown at rescuing the world economy since the Great Recession began is truly staggering, probably more than $14 trillion, and the financial spigots are still open.

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OTC Shift Poses Liquidity Risk

By Shanny Basar
Published April 11 2012 Financial News

The International Monetary Fund has put the increased cost of collateral that will come from moving over-the-counter derivate trades through clearing houses at between $100bn and $200bn, considerably lower than other estimations. But the body still believes this could hit liquidity in the market for safe-haven assets.

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Dallara Says Debt Swap Is on Track

By Alkman Granitsas
Published March 04 2012 Wall Street Journal

The organizers of Greece's proposed debt-restructuring plan have moved to offset doubts about whether enough banks will voluntarily agree on March 8 to a loss-making debt swap to keep the country out of default.

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G20 Turns Up Pressure on Germany

By Robin Harding, Adam Thomson, Peter Spiegel
Published February 26 2012 Financial Times

Finance ministers from the world’s largest economies ratcheted up the pressure on Germany to increase the size of the eurozone’s €500bn rescue fund, saying the move would be “essential” to a decision by non-European countries to raise more resources for the International Monetary Fund.

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As Cash Runs Out, Greece Teeters

By Carl B. Weinberg
Published November 5 2011 Barron's

Greece is on the way to default, sooner or later. Even Prime Minister George Papandreou's vow on Friday to step down and form a coalition government won't be able to stave it off. The dam burst early last week, days before the government won a parliamentary vote of confidence on Friday.

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The Problems With Derivatives Clearing

By Stephen J. Lubben
Published: April 5 2011 NYTimes

The International Monetary Fund is out with a new paper on derivatives after the storm, and it is a strangely academic exercise for an institution that one would hope would be a bit practical. In short, the paper argues that the focus in the Dodd-Frank Act on central clearing of derivatives is not the best solution and that central clearing parties are apt to become “too big to fail.”

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IMF Queries Derivatives Reform Effectiveness

By Aline van Duyn
Published: March 29 2011 FT

New regulations aiming to reform the vast derivatives markets may fail to remove systemic risks or prevent the need for another taxpayer bail-out of the financial system, according to a research paper published by the International Monetary Fund.

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