* Credit losses have continued to grow; most being borne by banks
* Government action gradually beginning to restore market confidence
* Decisive policy actions required, particularly on bank cleanup, recapitalization
An unprecedented policy response to the global economic crisis—including the recent expansion of resources for international institutions and the IMF’s enhanced lending framework—is gradually beginning to restore market confidence, the IMF said.
But in its semiannual Global Financial Stability Report (GFSR), released April 21, the IMF warned that the challenges to restoring financial stability remain significant.
“Continued decisive and effective action is needed to preserve and strengthen these first signs of improvement, and to help provide a more stable and resilient platform for sustained global growth,” José Viñals, Financial Counsellor and Director of the IMF’s Monetary and Capital Markets Department, said.
In particular, emerging market risks have risen the most in the past six months, the report said. The retrenchment of capital flows is straining economies that have relied on foreign-financed credit growth, while the deteriorating economic environment has increased expected bank writedowns and raised the need for fresh capital in emerging market banks, Viñals told reporters.
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