The world’s banking systems saw significant capital increases ahead of the pandemic and are resilient to very large shocks.
The Global Bank Stress Test is a major milestone in the IMF’s ability
to gauge the impact of global shocks like the pandemic. Originally
outlined in our October 2020 Global Financial Stability Report,
it provides a first-of-its-kind assessment of potential shocks and
spillovers to the world’s banks. And it’s also a useful new tool for
central banks and financial regulators to consider the effects of global
shocks on domestic systems.
The analysis in our new Departmental Paper
on the global stress test includes a quarter century of bank-level data
through 2020 for 257 of the largest lenders from across 24 advanced
economies and five emerging markets. Together, the institutions account
for 70 percent of the world’s banking assets. In each economy, the
stress test covers as many institutions as necessary to account for at
least 80 percent of assets for the individual banking systems.
This comprehensive sweep is important because bank stress tests are
usually done at a national level by central banks and supervisory
authorities, or across a currency union. That generally puts more focus
on domestic risks than the total level of global resilience, and
countries have different data and methodologies for evaluations that can
make it challenging to compare scenarios and results from one country
to another.
Banking systems have seen a trend of strengthening capital in the
wake of reforms launched after the 2008 Global Financial Crisis.
The Global Bank Stress Test results applied to scenarios, broadly in
line with the pandemic shock in terms of impact on key macro variables,
show an encouraging picture of resilience, but also a need for continued
close monitoring. This is especially true in emerging economies that
still have pockets of vulnerability combined with more constrained space
for policies to respond to new challenges.
In the test’s adverse scenario, global gross domestic product was
about 5 percentage points lower than our fall 2021 baseline assumptions
for 2022, and 2.5 percentage points less for 2023. A sharper tightening
in financial conditions for vulnerable businesses in emerging markets
and developing economies results in a larger shock for those economies
that also have a higher sensitivity of their core equity capital to
shocks.
Banks in emerging markets face greater risks in an adverse scenario,
reflecting the higher sensitivity of their core equity capital to
shocks.
While this analysis predates the war in Ukraine and current concerns
about stagflation, it suggests that banking systems remain able to
absorb shocks from adverse developments in global growth and risk premia
broadly in line with those seen during the pandemic, though there
remain uncertainties associated with the evolution of capital levels
during 2021 and the policy space to absorb new shocks.
IMF
© International Monetary Fund
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