Lessons from the Crisis for International Financial Surveillance

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Lessons from the Crisis for International
Financial Surveillance

• Dimitri G Demekas
• Assistant Director
• Monetary Capital Markets Department, IMF

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• Lessons from the crisis
• What have SE European countries learned?
• International financial surveillance
• What has the IMF learned?

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Lessons from the crisis

• Financial regulation
• Macroeconomic policies
• Global financial architecture

Initial Lessons from the Crisis (http//www.imf.o
rg/external/pp/longres.aspx?id4315) Lessons from
the Crisis for Future Regulation (http//www.imf.
org/external/np/pp/eng/2009/020409.pdf) Lessons
of the Crisis for the Global Architecture (http/
/www.imf.org/external/np/pp/eng/2009/021809.pdf) L
essons of the Global Crisis for Macroeconomic
Policy (http//www.imf.org/external/np/pp/eng/200
9/021909.pdf)
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Lessons from the crisis I

• Financial regulation
• Perimeter (regulation, information)
• Procyclicality (accounting, regulation)
• Prudential rules (capital requirements,
  liquidity, risk management, macro-prudential
  factors)
• Corporate governance practices (information
  disclosure, executive compensation)

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Lessons from the crisis II

• Macroeconomic policy
• Bubbles
• Leverage
• Countercyclical policies macro only or
  macro-and-prudential?

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Lessons from the crisis III

• Global financial architecture
• Cooperation in regulation, bank resolution,
  systemic liquidity
• Improved surveillance, especially of systemically
  important countries
• IMF governance and mandate

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What lessons matter for SE Europe?What have we
learned from SE Europe?

• Procyclicality in policy and regulation
• Capital requirements, liquidity rules
• The importance of leverage
• Regional contagion, regional cooperation

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International financial surveillanceWhat has
the IMF learned?

• IMF surveillance instruments
• Multilateral surveillance (WEO, GFSR)
• Bilateral surveillance (Article IV consultation)
• Financial Sector Assessment Program (FSAP)

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Better tools, greater flexibility

• Greater focus on crisis preparedness crisis
  management frameworks
• Improved stress testing techniques
• Emphasize data gaps/caveats
• Focus on liquidity risks
• Capture cross-market, cross-country exposure
• More flexible FSAPs
• More focused modular stability assessments,
  higher frequency

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New forms of IMF engagement

• European Bank Coordination Initiative
• Cooperation with FSB and financial sector
  standard-setters (EWE, revisions to standards)
• Input to FSB and G-20 peer reviews
• New forms of multilateralism?

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Thank you
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Standard capital inflow surgefinancing an
investment and growth boom
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while macro policies were insufficiently
countercyclical
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and prudential rules were procyclical.
Higher profitability lower provisioning
Higher growth lower provisioning
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The importance of capital and liquidity buffers

• Croatias unorthodox measures 2003-07
• Marginal reserve requirement on foreign borrowing
  by banks at 55
• Reserve requirement at 17
• Fx liquid asset requirement at 32
• Credit controls
• did not help slow credit growth, but provided
  buffers when the crisis hit

eliminated
reduced to 14
reduced to 20
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The importance of leverage
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Regional aspects of the crisis
CESE Asset share of foreign-owned banks, in
percent
TSI
TMO
T-Com
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Regional aspects of the crisis
RAIF Raiffeisen ERST Erste UNIC
Unicredit ISP Intesa Sanpaolo SG Societe
Generale
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European Bank Coordination Initiative