IMF Market Insights

What if we could better predict the buildup of systemic risk—before it materializes? A new IMF staff working paper introduces the Systemic Vulnerabilities Index (SVI)—a composite indicator designed to capture and quantify the buildup of financial imbalances. Using principal component analysis and Monte Carlo simulations, the SVI outperforms traditional metrics like the credit-to-GDP gap in forecasting future credit losses. The paper also proposes a framework for using the SVI to guide decisions on setting the Countercyclical Capital Buffer (CCyB) above its neutral rate, which supports a more timely and targeted macroprudential policy response. To download, please access the paper directly here: https://xmrrwallet.com/cmx.plnkd.in/ef5zQ9UY Authors: Etienne Yehoue, Knarik Ayvazyan

Why do money market funds (MMFs) grow during rate hiking cycles? …Because they offer higher yields compared to other cash alternatives, notably bank deposit rates. In a new IMF staff working paper, author Kleopatra Nikolaou looked across nine countries with significant MMF sectors and find that MMFs typically attract capital when rates rise, consistent with a yield-seeking behavior. Even after the 2023 banking turmoil, this remained the dominant force, especially in the U.S., with little evidence of widespread flight-to-safety flows. Interestingly, when MMF yields increase, investors tend to shift toward private debt MMFs, which may offer slightly higher returns. The findings reinforce the role of MMFs as tools for yield optimization in relatively safe times. As stablecoin discussions evolve—and with them, the idea that stablecoins could compete with MMFs—this dynamic is worth bearing in mind: yield advantage is a powerful driver of demand. Download the paper directly: https://xmrrwallet.com/cmx.plnkd.in/ePfW7Att

Global financial conditions have eased since April, with equity markets rebounding and credit spreads tightening. But elevated uncertainty and tariff risks could still trigger volatility. Markets now expect a slower pace of rate cuts across major advanced economies. Central banks are moving at different speeds as inflation paths diverge. The US dollar has also weakened, supporting capital inflows and easing in some emerging markets. But structural drivers of depreciation remain uncertain. Read our latest World Economic Outlook update here: https://xmrrwallet.com/cmx.plnkd.in/eDdAs57S

🆕 The IMF has released its latest Financial System Stability Assessment for the Euro Area The report highlights continued resilience in the Euro Area financial system, supported by strong bank capital and liquidity buffers. Progress has been made in supervisory and regulatory frameworks since the last FSAP, including enhancements in anti-money laundering oversight and banking supervision. Key points: ...The banking system remains robust, though fragmentation persists. ...Risks from geopolitical scenarios and linkages between banks and nonbanks can amplify volatility. ...The report emphasizes the importance of completing financial architecture reforms, enhancing cross-border coordination and data collection, and strengthening resources and powers of supranational authorities. The FSAP was based on missions to the Euro Area in late 2024 and early 2025, with findings discussed during the Article IV consultations in May 2025. 💡The FSAP also produced 9 technical notes: -Cyber Risk and Financial Stability – Selected Issues in Regulation and Supervision -Stress Testing the Banking Sector -Systemic Liquidity -Capital Markets Union – Implications for Supervision and Institutional Arrangements -Systemic Risk Analysis – NBFI -Insurance Micro and Macroprudential Supervision -Macroprudential Policy -Financial Sector Safety Nets -Investment Funds Regulation, Supervision and Systemic Risk Monitoring As well as 1 Detailed Assessment of Observance – Basel Core Principles for Effective Banking Supervision All referenced publications can be accessed here: https://xmrrwallet.com/cmx.plnkd.in/eTcdstDH Marc Dobler - Melo Fabiana - Laura Valderrama

Earlier this summer, together with The World Bank, we hosted the 24th International Conference on Policy Challenges for the Financial Sector. This year's theme was “Harnessing Regulatory Standards to Empower Supervision.” The conference focused on how comprehensive international standards, when effectively implemented, can significantly strengthen supervision and act as a critical anchor amid global financial complexity and volatility. The keynote address was delivered by Frank Elderson, from the European Central Bank [ 🗨️ https://xmrrwallet.com/cmx.plnkd.in/e522WT86], with a special address by Tobias Adrian, IMF Financial Counsellor and Director of the Monetary and Capital Markets Department [ 🗨️ https://xmrrwallet.com/cmx.plnkd.in/eUyk2T5G]. Over two days, participants discussed key financial stability risks. Sessions also addressed liquidity risk, the regulation of financial conglomerates, lessons from IMF Financial Sector Assessment Programs (https://xmrrwallet.com/cmx.plnkd.in/eqGfp5cS), crisis management in emerging markets and developing economies, and digital transformation. The event brought together nearly 100 participants, including Deputy Governors and Heads of Supervision from about 65 jurisdictions. The strong turnout reaffirmed the importance of this flagship event. 📅 The next conference is scheduled for June 2026.

The IMF's Monetary and Capital Markets Department has published a new chapter in the TA Handbook on FX Reference Rate.   👉 It provides guidance to central banks on the development of robust frameworks for FX reference rate determination. 👉 It addresses key challenges commonly encountered in emerging market contexts, including limited data availability, market fragmentation, and varying degrees of market development. 👉 It presents alternative methodological approaches for FX reference rate calculation, tailored to differing policy objectives and market conditions. It elaborates on key design elements, including the selection of eligible transactions, timing and sampling of data, and the choice of central tendency estimators. Additionally, it offers guidance on establishing data sufficiency thresholds and formulating contingency methodologies to ensure continuity in rate production. The chapter also emphasizes the importance of sound governance arrangements, clear accountability structures, and transparency practices in the provision of FX reference rates as public goods. Access the TA Handbook: https://xmrrwallet.com/cmx.plnkd.in/g3wuK-Hg Authors: Oleg Churiy, CFA, Istvan Mak, Stephen Mulema, CFA

How is France addressing emerging risks to financial stability in an increasingly complex world?   France’s financial system has withstood several years of global shocks, backed by strong supervision and solid capital and liquidity buffers among its major banks and insurers. Supervisors are well focused on financial stability risks, and stress tests show that both banks and investment funds remain resilient even under severe scenarios. But challenges remain. High debt levels in the household and corporate sectors, combined with growing ties between banks and non-banks, call for continued vigilance. Meanwhile, complexity in financial markets, particularly post-Brexit, adds to the pressure on supervisory resources.   As the financial ecosystem becomes more complex, continued investment in oversight capacity and data quality will be essential to preserve resilience. Read more in the recently-published IMF Financial System Stability Assessment: https://xmrrwallet.com/cmx.plnkd.in/e2wz4gWE

What are the key regulatory and supervisory considerations for crypto markets and activities in the Caribbean? This was the central focus of a recent hybrid course hosted by IMF’s Caribbean Regional Technical Assistance Centre (CARTAC) in Dominica, which brought together 152 participants from across its membership (both in person and online).   The course explored distributed ledger technologies, tokenization, licensing frameworks, and the supervision of crypto market entities. Participants also heard directly from the Financial Stability Board (FSB) and International Organization of Securities Commissions - IOSCO, who presented their global standards and engaged in dialogue on implementation challenges.   The program was a collaborative effort of IMF staff across several departments, led by the IMF's Monetary and Capital Markets Department Financial Supervision and Regulation Division (MCMFR), with contributions from the Legal and Statistics Departments. And to note, over the past five years, the MCMFR team has trained more than 800 supervisors from over 90 jurisdictions on the evolving regulation and oversight of fintech and crypto assets.   And CARTAC 📌 https://xmrrwallet.com/cmx.plnkd.in/deF9b7zN continues to play a vital role in supporting financial sector supervision, financial stability, and macroeconomic capacity development across the Caribbean.   Thanks to CARTAC Director Matthew Byrne, course lead Parma Bains (MCM FR), presenters Álvaro Ramírez Cárceles, CFA (CARTAC), NICO DI GABRIELE (personal views) (MCM external expert), Kris Nathanail ASCI EMBA (IOSCO), Peter Goodrich (FSB), Bidisha Das (STA), Paweł Pisany (STA), Donato Messineo (LEG), and administrator Shirley-Ann Lovell. IMF Capacity Development is grateful to its partners who support CARTAC and the region.

Have you read our working paper "From Text to Quantified Insights: A Large-Scale LLM Analysis of Central Bank Communication"? Learn more about how it can help central banks from Romain Veyrune and Thiago Christiano Silva in the latest staff blog. 👇

How investor composition affects bond return volatility A new VoxEU article 👉 https://xmrrwallet.com/cmx.plnkd.in/eR4ipHPe examines how the way investment funds are structured shapes both trading strategies and the types of investors they attract, influencing market stability. 🔎 Based on insights from a recent IMF Global Financial Stability Note on this topic, the column explains: Exchange-Traded Funds (ETFs) provide institutional investors with flexibility, enabling a variety of trading strategies such as liquidity management, hedging, and rapid adjustments of market exposures. While ETF ownership is, on average, associated with lower bond return volatility, the investor base matters: Institutional investors in ETFs tend to contribute to corporate bond volatility, whereas retail investors appear to have a stabilizing effect. 🔗 Read the article by Felix Suntheim, Benjamin Mosk, PhD, CFA, Anna Helmke, Yuhua Cai: https://xmrrwallet.com/cmx.plnkd.in/eR4ipHPe Download the IMF Note: https://xmrrwallet.com/cmx.plnkd.in/g_aFxpJs