IMF / FINANCIAL STABILITY THREATS

19-Apr-2017 00:02:54
Financial stability has continued to improve, as reflected by gains in many asset prices, says the IMF’s April 2017 Global Financial Stability Report. But policy and political uncertainty pose new risks to financial stability. IMF
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STORY: IMF / FINANCIAL STABILITY THREATS
TRT: 2:54
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH /NATS

DATELINE: 19 APRIL 2017, WASHINGTON DC, USA
SHOTLIST
19 APRIL 2017, WASHINGTON DC, USA

1. Wide shot, dais news conference
2. Med shot, journalists
3. SOUNDBITE (English) Tobias Adrian, Financial Counsellor and Director, Monetary and Capital Markets Department, International Monetary Fund (IMF):
“The market is pricing an increase in interest rates. The risk is that interest rates might rise even more quickly and that could be triggered by fiscal imbalances. And that would represent the downside risk.”
4. Close up, reporter asking question
5. SOUNDBITE (English) Tobias Adrian, Financial Counsellor and Director, Monetary and Capital Markets Department, International Monetary Fund (IMF):
“If policies go unexpectedly badly, some part of the corporate sector might be exposed to these unexpected shocks. So, there is a tail of vulnerable firms in the corporate sector that have a relatively low interest rate coverage ratio, i.e. where the cash flows that they generate do not necessarily cover the interest rate expenses. So, the $4 trillion number refers to that weak tail of the corporate sector.”
7. Close up, reporter asking question
8. SOUNDBITE (English) Tobias Adrian, Financial Counsellor and Director, Monetary and Capital Markets Department, International Monetary Fund (IMF):
“The growth of credit in the Chinese economy has been very fast since the financial crisis. And the overall level of debt is very elevated. The Chinese authorities are taking steps to contain leverage, both in the banking system and in the shadow-banking system. They show some success in reining in credit growth. But, in our view, more needs to be done.”
9. Med shot, reporters
10. SOUNDBITE (English) Peter Dattels, Deputy Director, Monetary and Capital Markets Department, International Monetary Fund (IMF):
“Non-performing loans in the Euro area still is a significant matter. And, if you look at it over the past two years, NPLs have come down only about 120 billion, so they’re still hovering around the 1 trillion mark. That’s the bad news. The good news is there’s much more focus on addressing this problem.”
11. Wide shot, reporters
12. SOUNDBITE (English) Tobias Adrian, Financial Counsellor and Director, Monetary and Capital Markets Department, International Monetary Fund (IMF):
“Getting the policy mix right, with respect to corporate tax reform in the U.S. means it will translate to more capital expenditures, more investment, which will in turn boost growth. That should really be the focus of the corporate tax reform, as opposed to financial risk-taking through payouts to shareholders, more leverage and these trends that we have observed in recent years.”
13. Med shot, reporters
14. Wide shot, dais
STORYLINE
Financial stability has continued to improve, as reflected by gains in many asset prices, says the IMF’s April 2017 Global Financial Stability Report. But policy and political uncertainty pose new risks to financial stability.

In a news conference today (19 Apr) to release the report, IMF Financial Counsellor Tobias Adrian said market optimism is based on expectations of certain policies.

“The market is pricing an increase in interest rates. The risk is that interest rates might rise even more quickly and that could be triggered by fiscal imbalances. And that would represent the downside risk,” said Adrian, who is the head of the IMF’s Monetary and Capital Markets Department.

Adrian said that the U.S. corporate sector is “healthy,” but has vulnerabilities.

He added, “If policies go unexpectedly badly, some part of the corporate sector might be exposed to these unexpected shocks. So, there is a tail of vulnerable firms in the corporate sector that have a relatively low interest rate coverage ratio, i.e. where the cash flows that they generate do not necessarily cover the interest rate expenses. So, the $4 trillion number refers to that weak tail of the corporate sector.”

Adrian urged policymakers to validate market optimism by getting the policy mix right, and deliver a stronger path for long-term, inclusive growth.

He outlined some other areas of concern. Adrian said, “The growth of credit in the Chinese economy has been very fast since the financial crisis. And the overall level of debt is very elevated. The Chinese authorities are taking steps to contain leverage, both in the banking system and in the shadow-banking system. They show some success in reining in credit growth. But, in our view, more needs to be done.”

The IMF also pointed to progress and concerns about some European banks.

Peter Dattels, IMF’s Deputy Director of the Monetary and Capital Markets Department, said “non-performing loans in the Euro area still is a significant matter. And, if you look at it over the past two years, NPLs have come down only about 120 billion, so they’re still hovering around the 1 trillion mark. That’s the bad news. The good news is there’s much more focus on addressing this problem.”

IMF officials say expected corporate tax reform in the U.S. offers an opportunity to build sustainable growth, but only if the correct policies are pursued.

Adrian said, “Getting the policy mix right, with respect to corporate tax reform in the U.S. means it will translate to more capital expenditures, more investment, which will in turn boost growth. That should really be the focus of the corporate tax reform, as opposed to financial risk-taking through payouts to shareholders, more leverage and these trends that we have observed in recent years.”
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