The Global Financial Stability Report in Eight Easy Steps

The Global Financial Stability Report is the IMF’s big assessment of how well the world’s financial system is holding up. To save you from having to read the whole thing here, in a few key pictures, charts and tables, is what you really need to know about this extremely important report.

You can read my news story about its warning of a second credit crunch on the website.

1. Impact of bank deleveraging

Let’s start with that credit crunch warning. Here are the key stats in one table. As you can see, the IMF believes that under existing policies, there will be a $2.6 trillion crunch in bank assets, which will lead to a 1.7% drop in euro area credit supply. That is its “credit squeeze” scenario. The top scenario assumes that policymakers essentially do everything right – and it still anticipates a fall in credit availability of $2.2 trillion. The worse-case scenario on the bottom is the full-blown credit crunch the Fund warns of in its report.

2. How the banks will shrink their balance sheets

Here’s how the IMF believes that banks will reduce the size of their balance sheets. As you can see, the majority of the reduction is expected to come through the sale of assets and reducing interbank lending. But those red and blue slices represent where the banks are expected to slash their lending to consumers and households.

3. Who will be affected

Here’s which countries will face the biggest crunch as a result of the central IMF forecast – and it’s striking that the UK will face a bigger fall in bank lending than France or Germany.

4. How risks are evolving

This spider-chart shows how the IMF believes the risks facing the financial system are evolving. As you can see, risk appetite is currently worse than in previous reports, but then market and liquidity risks are a little less heightened than in previous reports.

5. The triangle of doom

This rather sinister picture shows you the three directions the world’s financial system could take. And what each of them would imply.

6. The debt map

This brilliant chart, which I appreciate is tiny here but can also be found in slightly more legible proportions here, shows you which countries around the world have the most elevated and dangerous relative debt positions. As you can see, Britain is in a relatively decent position, although its banks have the most perilous levels of gross debt of any country around the world – a staggering 742% of gross domestic product.

7. Capital flight – in a picture

The big problem faced by many of the crisis-stricken euro nations is that depositors are pulling cash out of their banks (because they are worried about a full-scale Argentinian-style crisis). Here you can see what’s happened: in recent months depositors have been pulling cash out of Spanish, Italian, Portuguese and Irish banks and putting them into France, Germany and other places.

8. Sovereign debt paranoia

These pie charts show you how much it costs across the European markets to insure certain euro members against a possible default. As you can see (if you can’t see them in the tiny pic, you can see a bigger version here), there was rather a lot more red last November. The fact that it has improved since then suggests investors may be slightly less worried about the prospect of default in the euro area. Having said that, it still looks considerably worse than in 2010.