This paper is a detailed assessment of NOMX DM, undertaken in the context of the IMF Financial Sector Assessment Program (FSAP) Update for Sweden in 2011. NOMX DM, the only Central Counter-parties (CCP) in Sweden, has provided clearing services for equity, fixed income derivatives, and repo transactions since 2010. Even though NOMX DM has a comprehensive risk management framework, relevant points were brought up in the assessment related to governance and risk management. Swedish authorities have taken necessary measures to improve the system.
The Markets in Financial Instruments Directive (MiFID) which comes to life on November 1, 2007, represents a major step toward the creation of a single, more competitive, cross-border securities market in Europe. Together with other components of the European Commission's Financial Services Action Plan, MiFID has the potential to significantly transform the provision of financial services and the functioning of capital markets in Europe. This paper assesses the directive and the dynamics it creates from a broad perspective, focusing on those aspects that carry relatively higher transformation potential, and on the appropriate supervisory arrangements for European securities markets once MiFID is operational.
This Selected Issues paper on Euro Area Policies reviews the integration of Europe’s financial markets and the challenges faced by the new European Union member states with respect to euro adoption. Markets in the Financial Instruments Directive are expected to become applicable in November 2007. The Directive injects new competition among financial intermediaries at all steps of a security’s transaction cycle, from the provision of investment advice to the practical execution and settlement of the transaction, and thus holds the promise to accelerate Europe’s apparently sluggish financial sector productivity growth.
This Selected Issues paper on the Republic of Lithuania discusses structure of the financial sector, banking system vulnerabilities, and challenges. Rapid credit growth has been channeled into consumer and real estate lending, and is increasingly financed by foreign borrowing. The financial soundness indicators (FSIs) suggest a sound banking system, but may be lagging measure for financial system health. The current stress tests do not include a scenario with an economy-wide recession that could describe broader systemic risks to the banking system.
This paper discusses systematic issues in international finance explained in the International Capital Markets report. The paper describes that the nature and extent of recent banking problems in several industrial countries along with the policy responses to those problems. It is observed that balance sheet problems in banking are widespread among the major industrial countries. The paper also analyses recent activity in the European currency unit bond and exchange markets, and reviews developments in the private financing of developing countries and discusses several issues raised by the recent experience, including the broadening of the investor base for developing country securities, the special role played by regional financial centers in East and Southeast Asia, and the systemic implications of the evolving pattern of developing country financing. A key influence on international capital movements in recent years was the rising international diversification of investment portfolios, which is generally believed to have increased in response to the liberalization of exchange and capital controls in many industrial countries in the 1970s and 1980s.
A MEASURE INTRODUCED in Finland in May 1955 appears to be one of the first steps taken by a banking system to introduce, in its pure form, a device that has long been advocated by theoretical economists. Most savings banks in Finland introduced at that time a new form of time deposit for their customers. In future, money could be deposited for one year, and at the end of the year the bank would undertake to credit the account with the amount that the cost of living index indicated was necessary to restore the account's original purchasing power.1 The account would bear 4¾ per cent interest, 1½ per cent below the prevailing rate on deposits without the purchasing power guarantee. Since this step was taken at a time when there was, in other countries, a rising practical interest in the device, it seems useful to re-examine closely the advantages claimed for such an arrangement and to study the practical problems and fears that have made such experiments rare.
This year’s capital markets report has been divided into two parts. Part I, Exchange Rate Management and International Capital Flows, examined the implications of the growth and international integration of national capital markets for the management of exchange rates, with particular attention paid to the currency turmoil that enveloped the European Monetary System last year. Part II of the report focuses on several systemic issues in international finance, including recent experience with loan losses—especially in real estate—of banking systems in a number of industrial countries; sources of systemic risk in the rapid growth of off-balance-sheet financial transactions—particularly in the bank-driven, over-the-counter derivative markets; supervisory and regulatory developments; and some capital market issues pertaining to developing countries.
Although banking cannot lay uncontested claim to being the world’s oldest profession, it is clear that the principles that have helped to define sound banking behavior have a long history. At least five of those principles—namely, avoid an undue concentration of loans to single activities, individuals, or groups; expand cautiously into unfamiliar activities; know your counterparty; control mismatches between assets and liabilities; and beware that your collateral is not vulnerable to the same shocks that weaken the borrower—remain as relevant today as in earlier times. Indeed, behind all of the banking or financial sector crises that have emerged in industrial countries over the past decade—ranging from the developing country debt crisis of the early 1980s, to the saving and loan crisis in the United States, to the bank solvency crisis in Finland, Norway, and Sweden, to the spate of banking strains elsewhere—at least one of those principles has been violated.
The markets for over-the-counter and exchange-traded derivative instruments have exhibited explosive growth in the late 1980s and early 1990s.52 In their continuing search for profitable new activities, the banking sectors in the major industrial countries have become extensively involved in these markets both by acting as dealers in the OTC market and as users of exchange-traded instruments. Indeed, the most notable development in the major financial markets during the past five years has been the growth in volume and in diversity of OTC financial derivative instruments. Exchange-traded derivative contracts have likewise grown at a dizzying pace, stimulated in large part by the OTC business of the banking sector. The notional value of outstanding exchange-traded and OTC contracts has grown from $1.6 trillion in 1987 to $8 trillion in 1991, or from about 35 percent to 140 percent of U.S. GDP (Table 6 and Chart 18).
The shifting financial terrain over the past two decades has placed considerable stress not only on banks and other financial institutions, but also on the regulatory regimes in many industrial countries. International efforts to strengthen the regulatory framework for banks have focused on two main areas—the formulation of capital adequacy standards and the consolidated supervision of banks’ foreign establishments. The internationalization of financial markets has meant that a coordinated policy response among authorities was essential in preventing the shifting of financial activity to avoid regulation.