Group of Twenty

Meetings of G-20 Ministers and Deputies
September 3-4, 2009
London, U.K.

Updated Stocktaking of the G-20 Responses to the Global Crisis:
A Review of Publicly Announced Programs for the Banking System
Prepared by Staff of the International Monetary FundContents

Page

Executive Summary .................................................................................................................. 1
I. Introduction ........................................................................................................................... 3
II. Overall Assessment .............................................................................................................. 3
A. Principles of Crisis Management ..................................................................................... 3
B. Overview of Developments since September 2008 ......................................................... 4
C. Overall Assessment of Progress....................................................................................... 8
D. Level of Public Support ................................................................................................. 10
III. Detailed Crisis Response Measures Since March 2009.................................................... 12
A. International Cooperation .............................................................................................. 12
B. Diagnosis........................................................................................................................ 13
C. Creditor Guarantees........................................................................................................ 14
D. Capital Support .............................................................................................................. 16
E. Asset Management ......................................................................................................... 18
IV. Impact of Policy Measures ............................................................................................... 20
A. Financial Intermediation ................................................................................................ 20
B. Effect of Government Measures on Market Indicators.................................................. 21
V. Conclusion and Recommendations.................................................................................... 23

EXECUTIVE SUMMARY 1
Ten months after the collapse of Lehman Brothers, the G-20 governments continue toestablish and revise programs designed to address the fragility of banking systems intheir countries. Since October, more than half of the G-20 governments have responded to
the financial crisis by taking a series of publicly announced actions, aimed at the dual
objectives of restoring creditor confidence, and restructuring the banking system.
Markets have stabilized, but a return to normal levels of credit intermediation will be
slow. Banks are preserving liquidity and building capital while credit demand has fallen,
reflecting the global slowdown. Stabilization policies have been successful, partiallyremoving the urgency of continued policy adjustment. Any complacency or uneven progressin implementing reforms, however, could undermine progress made to date. Unless there is asustained and comprehensive implementation of crisis-management policies, financial
systems and the pace of global credit expansion may be slow to recover.
Crisis-containment policies were publicly announced and largely successful, but there
have been relatively limited public announcements among the G-20 concerning bankrestructuring and asset management. Many countries may not need broad-based andpublic programs. Their existing frameworks may be robust or conditions in their financial
system may not merit announcement of special policies. Private confidence and policy
coordination, however, could be enhanced by the announcement of policy intentions.


Formal policy cooperation remains at an early stage. Such cooperation has largely
been through low-key and existing channels, which has had only a limited impact on
public perceptions of the consistency of reform programs across countries. Progressin the coordination of policy responses has also been limited.

Just over half of the G-20 countries have announced strategies for restructuring or
recapitalization.



Several countries have announced their intention to conduct stress tests of theirbanking system. By June 2009, only two countries had completed stress tests and fivecountries had announced their intention to proceed with such evaluation. No countries
had publicly announced that they had undertaken a more comprehensive and full
diagnosis of their banking system.

1

This note was prepared by David S. Hoelscher, Suchitra Kumarapathy, Nancy Rawlings, and Andre Santos(all Monetary and Capital Markets Division).

2Forty percent of the countries have announced asset-management programs, thepurpose of which vary; however, only half address distressed bank assets and only
two of these are underway.2

While global markets have stabilized and there are early signs of recovery, criticalmeasures remain to be taken. Such measures include:

developing mechanisms for coordination of polices, particularly for thedisengagement from temporary creditor- protection policies;completing a full diagnosis of the banking system, in particular in light of thepotential increase in NPLs over the coming months;



combining stress testing policies with complementary policies needed to address
those banks identified as potentially weak; and

adopting asset management policies that are sufficient to neutralize the impact ofgrowing NPLs.

2

The United Kingdom’s Asset Protection Scheme has been established. Germany just recently announced their“bad bank” program. Korea’s plan, using Korea Asset Management Company, has not been utilized to date andthe United States Public and Private Investment Fund has been revised and is moving forward, but notransactions have occurred to date. The details of Spain’s recently approved program (under the Orderly Bank
Restructuring Plan) have yet to be announced.

3
I. INTRODUCTION
The current crisis is considerably deeper and wider than previous post-war crises. Its
scope demonstrates the extent of both unexpected weaknesses that had built up in financial
systems and the interconnectedness of the global financial system. The immediate
government response stabilized both financial institutions and private expectations. By early
2009, the crisis had been contained and governments turned to restoring financial sector
soundness.
This paper assesses progress made in implementing publicly announced crisismanagement policies. The paper focuses narrowly on policies to contain the crisis andsubsequent policies aimed at addressing weaknesses in the banking system. It is too early toevaluate either the medium-term impact or the effectiveness of these policy responses. This
paper, therefore, focuses narrowly on the pace of implementation of publicly announced
policy packages by the G-20 countries through the first six months of 2009. This focus on
announced packages, while forming only an incomplete evaluation, has at least two benefits.
First, public announcement facilitates easier cooperation across borders. Second, publicannouncements guide private-sector expectations about the authorities’ diagnosis of thecourse of the crisis and their program for addressing the crisis. In this way, announcements
can be a useful tool in crisis management.
The paper has several limitations. First, the impact of the global crisis has not been
uniform. Some countries relied on existing institutional frameworks to manage the crisis,making few, if any, special policy announcements. Their approach reflects a variety offactors including (i) differences in the extent of shocks to the national economy;(ii) differences in initial conditions of the financial system; and (iii) national preferences. The
focus in the paper on publicly announced programs, therefore, may understate progress madein meeting key objectives. Second, this paper does not review the full range of policy
measures, such as the provision of market liquidity or government support to nonbank
financial institutions.
II. OVERALL ASSESSMENT
A. Principles of Crisis Management
Experience from past crises offers some principles for the evaluation of responses to theglobal crisis. Policy measures can be classified in terms of the objectives they seek toachieve.3 In a systemic crisis, such measures have three interrelated objectives:3

For more detail, see David S. Hoelscher and Marc Quintyn, Managing Systemic Crises, IMF Occasional
Paper 224, 2003; and SM/09/23, “An Overview of the Legal, Institutional, and Regulatory Framework for Bank
Insolvency.”

4

Containment: Runs on banks by both depositors and other creditors must be halted,
as adjustment policies cannot be implemented when creditor confidence hascollapsed.



Restructuring and resolution: Rebuilding the banking system, including therecapitalization and operational restructuring, requires loss identification, a diagnosisof banks’ viability, the operational restructuring of weak but viable banks, and theresolution of nonviable banks.

Asset management: Management of distressed assets can begin once the financial
position of the banks is established. This may occur at the firm level or through acentralized asset-management function.

The specifics of policy packages will vary. Policies must reflect the institutional, legal, andregulatory environment of each country and the magnitude of the problem. Effective policy
packages must be designed to achieve all three objectives.
B. Overview of Developments since September 2008
Countries implemented a wide range of crisis-management policies, although thepriorities evolved over the course of the crisis. Critical actions included the establishmentof creditor protection programs and the injection of capital in banks (Table 1). Additional
actions included an evaluation of condition of the financial system and measures to address
the deteriorating assets of the banks. The objective of policy measures evolved over thecourse of the crisis from an early emphasis on containment to subsequent restructuring andasset management (Figure 1).
Containment of the crisis was the immediate priority, aimed at preventing the collapseof creditor confidence. In a number of countries, depositor protection was increased, largely
through increases in deposit insurance coverage, and debt issuances of financial institutions
were guaranteed. These measures stabilized creditors’ concerns in late 2008. Over half
(12 countries) of the G-20 countries responded with some forms of containment measures,
including both announcing enhanced depositor protection plans and debt guarantee programs.
The immediate crisis response also included aggressive bank recapitalization. The mostsignificant public capital injections occurred immediately after the collapse of Lehman
Brothers, with governments injecting the equivalent of approximately US$384 billion
between the beginning of September 2008 and end-February 2009. Recapitalization efforts
continued, albeit at a slower pace, through June 2009, with countries injecting an additional
US$75 billion between the beginning of March and end-June 2009 (Table 3).

Table 1. Overview of Policy Measures for Banks—G-20 Countries
As of June 30, 2009
Deposit Insurance

Argentina

No
Change√Australia
BrazilCanadaChina
France

19/

√

√

√
√

unannounced

√
√

14/

unannounced

√
√

√

√

Japan

√

√

425

√

531

/3

√

Russia√√√unannounced
unannounced

√

√

266

√
√

unannounced√√

Netherlands

Capital Plans
Established

1/
√
11/
√

Asset Management Strategies

CapitalCapitalAsset PurchaseCommitted
Injected
Plans or(bn of US$) (bn of US$)
Guarantees

Amount Committed (bn of US$)

√

16/

3

√

20/

115

10/

0

19
53

19
33

106

53

√

1

√

21/

217
30

√
√

√

Korea
MexicoRecapitalization

√

√

4/

16

√

5/

124

√

15

3

√

13/

√

18/

30

28

√

24/

32

√

25/

31

17

√

6/

132

√

6/

0

√

7/

138

56

√

12/

62

8/

700
$1,364

248
$458

√
9

2

104
$562

√
√

unannounced

√

22/

√

√
√

√

15/

218

√

United Kingdom
United States

23/

√
√
√

12

√

9

√

17/
9/

√
12

379
789
$2,608

√
√
16

√
10

Source: Various government announcements and information on official websites. Average exchange rates for September - June.
Footnotes on following page.

5

Italy

Total

√

√

√

Spain
TurkeyResolution
Liquidity

AmountWholesale Committed (bn Strengthened
borrowingof US$)
Measures√√

Germany
India
Indonesia

Saudi Arabia
South Africa

Establish,
Increase or
ExpandContainment
Debt Guarantees

1/ While China did not establish a capital plan, as part of the shareholding reform of large state-owned commercial banks, the government launched the reform of the Agricultural Bank of China
during the global financial crisis, and injected US$19 billion into the bank.
2/ Plans include the Public Private Investment Program (PPIP) and Asset Guarantee Scheme (AGP), which are under TARP. TARP funds committed for PPIP range between $75-$100 billion
and $3.5 bn thus far for AGP. The government commitments of $100 bn for PPIP and $3.5 bn for AGP are included here and under capital committed. See footnote eight also.
3/ Italy did not increase or expand its deposit insurance limit/coverage; however, the government will provide a "supplementary" guarantee: if the private scheme is unable to cover losses,
the government will reimburse.
4/ In February 2009, government established a euro 12 billion (estimated) bond program designed to increase capital of banks. This implements a previous measure approved in October 2008.
The first recapitalization bond was issued on July 31, 2009. This is not included in capital injections.
5/ Japan set aside Y12 trillion for recap and injected Y121 billion into 3 local banks. The Bank of Japan is also making available Y1 trillion in subordinated loans, of which Y20 billion has been provided.
Loans not included in capital committed.
6/ In June 2009, the Orderly Bank Restructuring Fund was approved for a maximum of 99 bn euros which will be used for bank recapitalization and restructuring purposes.
The program includes asset purchases, acquisition of capital instruments and guarantee measures. The amount is reflected under capital committed. In addition, in March 2009,
the central bank extended a 9 bn euro emergency loan to a bank. This is not included in capital committed or injections.
7/ The U.K. authorities committed up to GBP 50 bn for recapitalization in October 2008, of which GBP 37 bn was injected . The authorities have also agreed in principle to inject up to GBP 41 bn(GBP 35 bn plus option for 6 bn) under the Asset Protection Scheme, but this is not yet reflected in capital injections as of 6/30/09.
8/ Amount committed represents the government's TARP program which includes various recapitalization programs for banks (CPP -- capital purchase program, TIP -- Targeted Investment Program,
AGP -- Asset Guarantee Program), insurance companies, homeowners and consumers, and automotive financing and supply companies as well as the PPIP program. Amount injected relates to funds
disbursed under the CPP, TIP, and capital provided under the AGP through July 2009.
9/ This represents the amount committed under the FDIC's Temporary Liquidity Guarantee Program. This program consists of two sub-programs -- Transaction Account Guarantee Program
and the Debt Guarantee Program. Under the latter, the amount that could be issued at 6/30/09 was $789 billion while $339 was outstanding. Amount sourced from FDIC website.
has not been utilized as of August 18, 2009.
11/ This represents the Financial Market Stabilization Fund (SoFFin) whereby the government has commited up to 80 bn euros to recapitalize banks, purchase risky assets and provide guarantees.
12/ This represents the guarantees (GBP 35 bn plus option for 6 bn) under the Asset Protection Scheme which are also reflected under capital committed. See footnote seven.
13/ This includes the program (KRW40 tn) administered by Korea Asset Management Company which has not been tapped to date and the Emergency Credit Guarantee Program covering certain loans.
14/ This represents the Canadian Lenders Assurance Facility which covers federal and some provincially regulated DI's . This program has not been used as of June 2009.
15/ This amount includes an additional 64 billion euros in guarantees recently authorized by the government in July 2009.
16/ The Office of Financial Management will purchase A$ 8 billion worth of Australian residential mortgage-backed securities (non-toxic), of which A$ 4 bn will beallocated to non deposit-taking institutions. A$4 included here.
17/ This represents the Credit Guarantee Scheme (250 GBP) and the guarantee scheme for AAA rated ABS (guarantee commitment amount unannounced).
18/ The Dutch government did not specify an amount for the capital support scheme; however, 20 bn euro was made available at the time of the announcement in October 2008.
19/ No changes for federally-regulated deposit taking institutions but provincial government approved unlimited protection for credit unions.
20/ This represents the Insured Mortgages Purchase Program (C$125 bn) and the Canadian Secured Credit Facility (C$12 bn).
21/ This represents two programs introduced in 2002 that were terminated before the current crisis but reintroduced in February and March 2009.
22/ Saudi Arabia does not offer deposit insurance but in October 2008, Saudi Supreme Economic Council announced that the government continues to guarantee the safety of

local banks and bank deposits.
23/ This represents the FAAF, a 43.25 bn euro fund to buy high-quality assets from banks and other institutions.
24/ This represents the Dutch state's credit guarantee for a specific Dutch mortgage portfolio of ABN Amro and an illiquid assets back-up facility for ING's Alt-A portfolio.
Euro 2.5 billion of guarantees associated with ABN Amro is in form of capital and also reflected as capital committed.
25/ Amount committed includes 460 rubles committed under OFZ bond scheme and 500 rubles already injected into a bank. The bond scheme was announced July 1, 2009.

6

10/ See also footnote 11. The government passed the Act to Further Develop Financial Market Stabilization which addresses distressed assets. The "bad" bank program under SoFFin

7
Figure 1. G-20 Programs/Announcements, Sep 2008–June 2009

12

12

12

12
Debt Guarantee(Total number of G20 participants)

Deposit Insurance(Total number of G20 participants)

2

2

0

0

0

0

6

300

300

5

250

250

200

200

G20: Government Capital Injections(In billions of U.S. dollars)

Apr-09Jun-09350

350

Jun-092

May-092

Mar-094

Feb-094

Jan-094

Dec-084

Nov-086

Oct-08

6

Sep-08

6

May-096

Apr-098

Mar-098

Feb-098

Jan-098

Dec-0810

Nov-0810

Oct-0810

Sep-0810

6

Asset Management Strategies(Total number of G20 participants)

5
Korea 5/

4

4
Canada 1/

3
150

150

100

100

3
U.K 2/

Netherlands 4/2

Canada 1/

Netherlands 4/
Japan

Korea 5/Spain
Jun-09

May-09Apr-09Mar-09Feb-09

Nov-080
Oct-080
Sep-08Jun-09

May-09Apr-09Mar-09Feb-09

Jan-09Dec-08Nov-08

Oct-080
Sep-080Germany 3/
1

Australia

Jan-0950

1

Dec-0850

2U.S.

Source: Central Bank Websites.
1/ In October 2008, the government operated its first insured mortgage purchase program followed by another program(purchase of asset-backed securities) in February 2009.
2/ In February 2009, the government established the Asset Protection Scheme.
3/ In May 2009, the government agreed to adopt an act that will enable banks to deposit their toxic assets in a special purpose
vehicle 'bad bank'. The first transaction with Landesbanks took place in June. The law was finally approved in July.
4/ In Janurary 2009 the government announced the Dutch state's credit guarantee for a specific Dutch mortgage portfolio of
ABN Amro and, in June 2009, the government also announced illiquid assets back-up facility for ING's Alt-A portfolio.
5/ Korea established in February 2009 the Emergency Credit Guarantee Program, and, in March, announced that Korea AssetManagement Company will purchase NPLs, troubled assets of financial institutions, and companies under restructuring.

8
As the immediate crisis waned, governments turned to the second phase of crisis
management. A key element of this stage was an evaluation of the health of the banking
system. In early 2009, both the United Kingdom and the United States announced they had
conducted stress tests for key banks. In mid-2009, the Committee of European Banking
Supervisors (CEBS), together with the ECB and the EC announced a coordinated, systemwide stress test. In addition, a number of European countries have been undertaking stresstests of key domestic and global private financial institutions. While the United States opted
to publish such final results, other countries have not made such results public. Morerecently, a few governments have begun establishing programs for managing impaired assets,
but progress in this area has been more limited.
C. Overall Assessment of Progress
Programs to stabilize creditor expectations and recapitalize weakened financial
institutions were successful, but the crisis management frameworks remain incomplete.
The March 2009 stocktaking paper acknowledged the success in the first stage of crisis
management.4 At the same time, it proposed four priorities for addressing the next stage ofbanking system restructuring:

developing mechanisms for coordinating crisis-management policies;

conducting a diagnosis of financial institutions’ soundness and capitalization needs;developing restructuring and/or recapitalization strategies for undercapitalized banks,
based on a diagnosis that includes a methodology for valuing distressed assets; anddeveloping asset-management strategies.

This paper classifies the G-20 countries by the status of their publicly announced
programs aimed at achieving these priorities. The actions of each country, described in
Statistical Appendix Table I, have been classified into three categories based on the status ofannounced programs:5Announced — Programs announced but not yet implemented.
Underway — Programs announced and implementation is in progress.
Completed — Programs announced and completed implementation.

4Group of Twenty—Note by the Staff of the International Monetary Fund on Stocktaking of the G-20
Responses to the Global Crisis, EBS/09/29, March 10, 2009.
5

The table is based on responses received from the authorities to a survey conducted for this paper.

9
As described above, the focus of this classification is on publicly announced policy
packages. This approach understates progress made in meeting key priorities, as a number ofcountries are implementing measures, but not announcing them as part of new policy
packages. Such countries have either been less affected by the crisis or have opted to manage
financial distress within their existing regulatory and institutional framework.6
Progress in meeting the publicly announced crisis management priorities has been
uneven. While successful in providing creditor protection and recapitalizing distressed
institutions, progress in bank diagnosis and asset management has been more limited(Figure 2).
The objective of policy cooperation has been announced, but few countries havesought broad cooperation in a public and recognizable fashion.

Just over half of the G-20 countries have announced and begun to implement
restructuring or recapitalization strategies.

Few countries have publicly announced a formal evaluation of their financial system.

Less than half of the countries have announced asset-management programs and only
55 percent of those have had transactions occur.
Figure 2. G-20 Financial Crisis Program Status

25
Announced

Underway

Completed

Number of Countries

20

15

10

5

0
PolicyCoordination

6

Depositor
Protection

Debt
Guarantee

Publicly
Restructuring
Asset
Announced
andManagement
Diagnosis Recapitalization

The focus on publicly announced programs reflects the possible benefits of such announcement in crisis
management. Public announcements demonstrate the authorities’ diagnosis and their policy approach, allow foreasier cooperation across borders, and may help guide private sector expectations.

10
Differences exist among regional groupings of G-20 countries.7 Overall, Continental
Europe (five countries) has announced more crisis-management programs than other regions,primarily focused on protecting creditors and restructuring and recapitalizing the banks. They
are now planning systemic evaluations of the banks’ financial conditions. The United
Kingdom and the United States, partially reflecting their position at the epicenter of thecrisis, are relatively far advanced as well. Evaluations of the financial system have been
completed; and both the restructuring/recapitalization programs and the asset management
strategies have been announced and are underway for the United Kingdom and the UnitedStates though they are in various stages of completion.8 Few countries in the Western
Hemisphere, (excluding the United States) have announced crisis-management policies. Most
countries in Asian countries have taken at least one type of action during one phase of thecrisis with two countries announcing plans in four crisis-management areas.
D. Level of Public Support
Total expenditures in public recapitalization to address the crisis have been below
historical norms. Bank recapitalization expenditure for countries undergoing a systemiccrisis in the past has averaged 15 percent to 20 percent of GDP. As of June 2009, total
recapitalization expenditures of the G-20 countries amounted to the equivalent of
US$458 billion (Table 2). The Netherlands injected the largest relative amount (3.6 percent
of GDP) followed by the United Kingdom (2.6 percent) and the United States (1.8 percent.).9
If the calculation is limited to only those G-20 countries that have injected public funds(China, France, Germany, Japan, Netherlands, Russia, Korea, United Kingdom, and theUnited States), the total public sector expenditure on bank recapitalization amounted to lessthan 1.0 percent of their GDP.10 This relatively low level reflects a variety of factors,
including the rapid containment of the crisis; the extensive use of guarantees; and, to alimited extent, accounting changes to limit asset price volatility.

7

We have grouped countries into several regions: Africa, Asia, Europe, Middle East and Western Hemisphere.
See Statistical Appendix Table 1 for regional groupings.
8

The PPIP has been revised and, while the legacy securities program is moving ahead on the original track, thepilot program for the legacy assets (loans) now includes only receivership assets. For the U.K., the asset
protection scheme announced in February 2009 awaits final agreement between the authorities and the banking
groups.
9

Capital expenditures by the United States exclude support to nonbank financial institutions.

10

GDP data was calculated as the sum of Q3 2008 through Q2 2009. For countries where nominal GDP data
was unavailable from WEO, real GDP and the GDP deflator were used to compute nominal GDP. The
exchange rate to calculate the U.S. dollar GDP was calculated as the average from July 2008 through September
2009.

11
Public commitments to recapitalization, creditor guarantees, and asset protection wereconsiderably higher. The G-20 countries committed the equivalent of approximately
7 percent of GDP, representing commitments for debt guarantees, capital injections, andasset protection. Commitments for debt guarantees form the largest portion of overallcommitments, followed by capital commitments and asset management. The Netherlands has
committed the largest portion (42 percent of GDP) followed by the United Kingdom(27 percent). France, Germany, and Spain have committed in the order of 18 percent to25 percent. These amounts may overstate the eventual expenditures of the G-20 countries—if
economic conditions improve, not all committed funds may be spent.
Table 2. Public Sector Support

Guarantees
2/

Committed
Capital1/

Injected
Asset
Protection

Total

Capital(In billions of US dollars)
Argentina
Australia
BrazilCanadaChina
FranceGermany
India
Indonesia
Italy
Japan
MexicoNetherlands
RussiaSaudi Arabia
South Africa
South Korea
Spain
TurkeyUnited Kingdom
United States
Total

425
531

16
124
266

(In percent of GDP)

3

3

115

115
19
478
638

19
53
106

217

Committed Injected

16
341
0
328
31

0.3

19
33
53

2.1
0.2
18.7
19.9

0.2
1.3
1.6

1

0.8
1.7

0.0

28
17

42.4
2.3

3.6
1.2

30
31

32

15
132

30

45
349

3

5.8
24.3

0.4

218
379
789

138
700

62
104

579
1,593

56
248

26.7
11.4

2.6
1.8

2,608

1,364

562

4,534

458

6.8

0.7

Source: Table 1
1/ The capital committed amounts for the United Kingdom, United States, and Netherlands include the amounts
committed for asset protection as the recapitalization plans in these countries address capitalization needs and distressed assets.
2/ Not all countries providing debt guarantees announced a specified committed amount, therefore, total costs may be understated.

12
III. DETAILED CRISIS RESPONSE MEASURES SINCE MARCH 2009
A. International Cooperation
Recent developments
International cooperation was initially limited but, as the crisis ebbed, greater efforts
were made at cooperation and information sharing. The early and rapid expansion ofdepositor protection was managed, at best, through low-key and informal discussions throughexisting channels. As such, these actions conveyed the appearance of a lack of cooperation
among the G-20 countries.11 Some countries, particularly in the EU, acknowledged theimportance of coordination. The EC identified critical elements of policy packages and hassought to enhance information sharing. As conditions stabilized, a number of internationalorganizations have begun to serve as fora for disclosure about the scope of measures anddiscussions of the direction of policy changes.
Assessment
While cooperation is improving, coordination of policies among countries remains anelusive objective. The benefits are recognized, but domestic constraints have, at times,
overshadowed efforts of such coordination. As the crisis is contained and the need forextraordinary protection measures ease, the need for closer ex ante policy coordination may
grow as countries begin to unwind crisis management policies. Two separate challenges
exist. First, the internal coordination among government agencies in the design andimplementation of unwinding policies can be strengthened. Second, mechanisms for
coordination across countries must be enhanced, so that individual unwinding of protection
does not jeopardize progress to date at stabilizing the global financial system. Internationalfora, such as the Financial Stability Board (FSB) or the IMF, could facilitate such efforts byidentifying high-level principles for key policy decisions and facilitating the informationexchange and coordination among countries.
Public coordination and effective communication of policy objectives are related
objectives in crisis management programs. Effective communication of the authorities’assessment and policy direction should be used to strengthen and enhance credibility of apolicy package. Such communication can guide private expectations, explaining expectedadjustments in policy direction.

11

While the EU did cooperate in the setting of depositor protection levels—suggesting that coverage beincreased to between EUR 50,000 and EUR 100,000—cooperation in other elements of crisis management waslimited.

13
B. Diagnosis
Recent developments
Countries have followed different approaches concerning diagnosis of the conditions of
their financial systems. No country has yet undertaken a publicly announced, full diagnosisof the medium-term viability of their financial systems. Such a financial sector diagnosis,
similar to what has been done as part of IMF programs in past crises, includes an evaluationof the strength of major borrowers, a review of the medium-term viability of the banks’business models, and the prospects for medium-term profitability in the new economic reality
emerging from the crisis. Instead, countries have relied on stress tests to evaluate thesusceptibility of key banks to specified shocks. Countries have differed to the extent that(i) they have announced their activities; and (ii) they have published results.
Beginning in 2009, the United Kingdom and the United States began wide-ranging
stress tests. In March, the United States conducted stress tests of selected banks and madepublic the results. Those tests showed that capital shortfalls were manageable. In addition,
during the first quarter, the United Kingdom conducted detailed inspections and stress tests
for key banks. The results of the tests were not published but used to determine participationin the authorities’ Asset Protection Scheme (APS).
Following the experience of the United Kingdom and the United States, a number ofcountries planned stress tests on targeted institutions. The Committee of European
Banking Supervisors (CEBS) together with the ECB and the EC announced a coordinated,system-wide stress test in May 2009.12 The project is to be completed by September 2009 andaggregated results will not be made public.
Assessment
System-wide diagnoses of financial sector distress remains limited. Stress tests may notassess the medium-term viability of a financial institution. Responses to shocks, while animportant input in such evaluation, excludes important elements, including the strength of the
key borrowers, the viability of the business model, and the competitive position of theinstitution. For that reason, countries may consider turning to a more comprehensive
methodology for diagnosing the medium-term viability of financial institutions.
Countries have largely opted not to publish the results of bank-by-bank stress tests,
reflecting a number of concerns about publication. One concern is that if severe but
plausible stresses are applied these parameters may be interpreted as economic predictions.
Publication of results, therefore, could worsen private confidence in the economy. Moreover,
12

This exercise uses common methodologies and scenarios developed by CEBS.

14
concern about such market reaction could lead countries to understate the stresses used to test
the banking system and under-diagnose potential financial weaknesses. Given these different
approaches, there could be benefits to international coordination of publication policies inorder to avoid competitive disadvantages of an uncoordinated approach.
Publication of stress tests results can be positive if accompanied by commitments toinject capital and policies to address weak banks. Publication of results should be
combined with a publicly announced strategy to address any weak banks to avoid adisorderly response in the markets. If stress tests identify a bank as potentially weak but noaction is taken, creditors may reduce exposure or even run from the banks. Identification ofpotential losses without the policy instruments to provide any required capital could harm,
not strengthen private confidence. Policy responses could include immediate supervisory
actions or recapitalization either by private sources or through a public-private
recapitalization program.
C. Creditor Guarantees
Recent developments
Creditor guarantees were put in place early in the crisis. Countries increased deposit
insurance levels, providing blanket guarantees in some cases. In many cases, thegovernments also provided wholesale debt guarantees. The implementation of debt
guarantees reduced concerns about counterparty risk, facilitating access to market financing.
The largest use of such programs was made by financial institutions in France, Germany, theNetherlands, the United Kingdom, and the United States.
Differences exist in the structure of the guarantee schemes. In the United States,
guarantees applied to all new eligible issuances, unless the bank explicitly opted out of the
program. All other programs were considered “opt-in” systems where the banks wererequired to apply for support. This difference affected the market view of participation in the
program. In the United States, participation carried limited market news, while in the“opt-in” programs the market was alerted to potential bank difficulties. In addition, thepricing system differed. The United States implemented a flat-fee approach while theEuropean approaches applied fees that varied with the banks’ riskiness.
Assessment
The guarantee programs were successful in improving market access. Overall, bondissuance increased in the first half of 2009. Banks in the United Kingdom and the UnitedStates were the largest issuers in early 2009, although Australian banks, that were relatively
unaffected by the crisis, took advantage of the easing market conditions, and German andSpanish banks became active issuers (Figure 3).

15
The debt guarantee programs had additional benefits. By reassuring creditors about theintentions of the authorities to support the financial systems, overall confidence began
returning in early 2009. As a result, the issuance of nonguaranteed debt also began toincrease, reflecting greater access to market funding (Figure 3). While such levels have not
returned to previous levels, this represents an improvement in the funding capacity of thebanks.
Figure 3. G-20: Issuance of Bank Bonds, Q1:2007-Q2:2009
A. Iss uance of non-guarant eed bank bonds
800(US$ Million)

700
600
500
400
300
200
100
0
2007 Q1
2007 Q2
Argentina
Franc eJapan
South Africa
United States2007 Q 3
Australia
G ermany
MexicoKorea

2007 Q4

2008 Q1
2008 Q2
2008 Q3
2008 Q 42009 Q1
BrazilCanadaChina
India
Indonesia
It alyNetherlands
Russian Federat ion Saudi Arabia
Spain
TurkeyUnited Kingdom

2009 Q 2

B. Iss uance of government guaranteed bank bonds
800(US$ Million)

700
600
500
400
300
200
100
0
2007 Q1

2007 Q2
Australia

Source: Dealogic.

2007 Q 3
France2007 Q4

Germany

2008 Q1

Net herlands

2008 Q2
Korea

Spain

2008 Q3

2008 Q 4

United Kingdom

2009 Q1
United Stat es

2009 Q 2

16
D. Capital Support
Recent developments
Government injection of capital slowed in the second quarter of 2009. Since March,governments injected the equivalent of US$75 billion. Three countries represented almost allof these injections (France, Germany, and the United States). This level of capital injection issubstantially below the US$384 billion injected during the period September 2008–February
2009, and reflects, in part, the stabilization of the financial systems and, in part, renewed
access to private markets for bank capital.
Since March 2009, two G-20 countries established formal recapitalization or
restructuring plans to support their banking systems – Russia, and Spain. While thegovernments of these countries announced their intentions to assist banks in late 2008, no
July 1,formal plans had emerged until recently.13 The Russian government announced on
2009 that approximately RUB 460 (approximately US$15 billion) will be made available torecapitalize banks in 2009/2010. The government will issue bonds and these would beexchanged for preferred shares in banks. At the same time, Spain established the OrderlyBank Restructuring plan with an initial EUR 9 billion committed funds (about US$12
billion). The purpose of the plan is to boost confidence and encourage mergers, and it
appears that it can be used for recapitalizing and restructuring.
Assessment
The reduced public sector outlays for recapitalization in the first half of 2009 may not
be sustained. The stress tests may identify further potential losses that will need to beaddressed. Moreover, two developments could increase the need for capital injections. First,
the global recession, while showing signs of easing, may result in significant increases in
NPLs that banks will have to absorb (see Section IV A). Second, recent accounting changes,
limiting the requirement for mark-to-market, could be rolled back, re-introducing an elementof asset price volatility and the need for strengthening capital buffers. If such capital needs
cannot be raised in private markets, public resources may be required.
.

13

In October 2008, Spain’s government authorized the purchase of bank’s shares, if requested by the credit
entities to reinforce their capital.

17
Table 3. G-20 Capital Support 1/(In billions of U.S. dollars)Country
Argentina
Australia
BrazilCanadaChina
FranceGermany
India
Indonesia
Italy
Japan
Korea
MexicoNetherlands
RussiaSaudi Arabia
South Africa
Spain
Turkey2/
United Kingdom
United States
Total

3/

Total
(Sept. 08 - Feb '09)

Total
(Sept '08 - June '09)

19.0
15.1
10.8

19.0
33.1
52.8

1.2
3.0
26.6
17.2

28.0
17.2

56.2

56.2

238.8
383.7

247.9
458.4

Note: Average exchange rat es from 10/08 - 02/09 are used for Totals (Sept. 08 - Feb. 09)
and average exchange rates from 10/08 - 06/09 are used for Totals (Sept. 08 - June 09).
1/ Amounts represent actual capital injected into banks f rom government and does not include
capital committed and not yet ref lected in banks' balance sheets nor amounts repaid.
2/ Additional capital to be provided under the Asset Protection Sc heme (GBP 35 bn plus an option
for an additional 6 bn) has been agreed in principle but not reflected in capital injections as of 6/30/09.
3/ Includes amounts injected from TARP (Capital Purchase Program, Targeted Investment Program,and Asset Gurantee Program) by governments in form of capital as of 06/26/09.

18
E. Asset Management
Recent developments
The treatment of distressed assets has been addressed in widely different ways. Somecountries opted to guarantee assets held on the books of the banks, while other countries
opted to remove distressed assets (Table 4). In some cases, countries have changed direction
as the asset-management programs have progressed. Overall, programs to guarantee assets
appear to be further advanced than those designed to remove distressed assets from bankbalance sheets.
Guarantees: With respect to the former, the Netherlands, the United States, Korea,
and the United Kingdom have introduced programs to guarantee distressed assets.14
The Netherlands’ and the United States’ programs have been utilized for specificbanks and transactions have also occurred under Korea’s program. While the United
Kingdom’s program is closed, the final arrangements with two major banks approved
under the program are still pending.

Removal of distress assets: The United States’ PPIP has been redesigned so that thelegacy (existing) loans portion of the program only applies to receivership assets at
this point. The legacy securities portion of the program is moving forward; however,no transactions have occurred as of June 30, 2009. Similar federal programs inGermany, Spain, and Korea have not yet been used. Given the low activity withrespect to removing distressed assets, it appears that countries may have opted toprovide asset guarantees to limit the capital impact of asset volatility as opposed toeliminating the distressed assets entirely and shrinking the balance sheets.

In early 2009, both the United Kingdom and the United States established strategies todeal with distressed assets. The Public Private Investment Program (PPIP) in the
United States is slowly being implemented, but has changed direction along the way. The
original program was designed to remove bad assets (whole loans and structured loan
products) from all banks; however, in June 2009, the government announced that the
program for legacy asset purchases (whole loans) would apply only to banks that have failed
and been put into receivership. Assets held by operating banks would remain the banks’
responsibility. The implementation for the portion of the program addressing distressed
structured loan products continues to make progress. The United Kingdom’s APS provides
protection against credit losses on pools of specified assets above a specified threshold (i.e.,
the first loss); however, in contrast to the United States’ PPIP, the APS does not remove
assets from the balance sheet. The application period closed on March 31, 2009 and two

14

See footnotes to Table 4 for specific country programs.

19
major banks are considering participation. The program targets risky assets and the first loss
portion will be met with a deduction from capital.
Table 4. Summary of Asset Plans EstablishedPurposeAddress
Distressed
AssetsLiquidity
1/

√

√

√

√

Germany
Japan

4/

Korea

5/

3/

Netherlands
Spain

High
quality

2/

Australia
CanadaQuality of Assets

√
√
6/

Toxic

Type of Asset Purchased and Guaranteed
Loans

Structured Products

Mortgageloans

Mortgage Other asset
backedbackedsecurities
securities

Other Assets
Investment
securities

Other

√
√
√

√
√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

√

7/

United Kingdom
United States

9/8/

1/ The Office of Financial Management will purchase Australian residential mortgage-backed securities (non-toxic).
The first purchase was in December 2008.
2/ This represents two programs established in Canada. Under the Insured Mortgages Purchase Program, the government will purchase insured
mortgage pools consisting of high quality assets and under the Canadian Secured Credit Facility, the government will purchase asset backed
securities backed by loans and leases on vehicles and equipment. Transactions have occurred under both programs.
3/ Purcahses under Germany's plan will comprise toxic sub prime real estate securities and other problem assets, business lines,or subsidiaries from banks.
4/This represents two stock purchase programs reintroduced in Japan.
5/ Korea will purchase assets through Korea Asset Management Company which will include non-performing loans, troubled assets, and companies
under restructuring. No purchases to date as of June 30th. Korea will also guarantee certain loans (e.g., SMEs)
under the Emergency Credit Guarantee Program (new loans and rollovers of existing loans).
6/ This represents the Dutch state's credit guarantee for a specific Dutch mortgage portfolio of ABN Amro and an illiquid assets back-up facility (guarantee)
for ING's Alt-A portfolio.
7/ Spain approved a program in the June 2009, the Orderly Bank Restructuring Plan, which is designed to provide support and manage therestructuring of banks. Specifics of this plan are yet to be determined.
8/ This represents the Asset Protection Scheme which guarantees assets. Final arrangements are pending for two banks.
9/ This includes the Public/Private Investment Program (PPIP) and the Asset Guarantee Scheme (AGP). Under the PPIP,
the legacy (loan) assets program is being implemented for receivership assets only at this point. The legacy securities portionof PPIP has selected private managers to manage the securities. Guarantees provided under the AGP include covered asset poolsconsisting of securities and residential, consumer and corporate loans.

Since March 2009, three countries have established asset-management strategies to deal
with distressed assets and/or to guarantee other assets. Some of the programs establishedhave aimed at providing liquidity to banks, while others have sought to remove distressed
assets from bank balance sheets.
Korea announced in March 2009 that the state-owned Korea Asset Management
Company would issue KRW 40 trillion in government-guaranteed bonds to purchasenonperforming loans, troubled assets of financial institutions, and companies underrestructuring. The fund will be in operation until 2014; however, as of July 2009, it
has not been utilized by banks. Early in the year, the government also created an
Emergency Credit Guarantee Program, which will be available until the end of 2009.
This is designed to assist Small and Medium Enterprises. Guarantees will be covered

20
by Korea Credit Guarantee Fund and Kibo Technology Fund, including those thatmature in 2009, which will be rolled over fully automatically.
Germany approved a “bad bank/good bank” program in July 2009 to deal with
distressed assets. This action followed an approval for the state Landesbanks totransfer their structured securities to a special “bad bank” vehicle. The government
had been considering such a plan since October 2008, when the government
announced the Law on the Financial Market Stabilization Fund (SoFFin).



In June 2009, Spain established the Orderly Bank Restructuring plan with an initial
EUR 9 billion committed funds (about US$12 billion). The plan may be used forremoving distressed assets and for financing recapitalization and restructuring.

Assessment
Guaranteeing assets provides time to restructure distressed assets, but may not be
sufficient to restore confidence in the banks. Guarantees may be the most effective option
when there is an expectation that asset values will recover. Such guarantees provide time forthe restructuring of assets by institutions that may have close relationship with the borrowers.
Also, if the bank is able to obtain the benefit of a risk transfer with an asset guarantee, (i.e.,
capital requirements are lowered due to lowered risk weighted assets) then incentives toremove the assets altogether may be reduced. However, there may be conditions whenguarantees would be ineffective and renewed efforts would be needed to remove distressed
assets or more completely neutralize them from banks’ operations. Moreover, a reason for
the reduced emphasis in removal of assets is that changes in accounting rules have limited
price volatility arising from mark-to-marketing asset prices. However, if accounting rules
concerning mark-to-market were to be reinstated, asset volatility would return, undermining
private confidence in the capital buffers in the financial system. A second reason to continue
to explore asset removal programs is that some assets, particularly complex structure
products, may be difficult to resolve and may remain on the banks’ books for a considerable
period, undermining bank profitability. Third, perceptions of bank soundness could beenhanced by removal of the assets. Such removal would formalize the true amount of all
losses, ensuring that “legacy losses” are fully addressed. Finally, removal of such assets
would allow banks to focus on managing their future activities rather than on legacy/problem
assets.
IV. IMPACT OF POLICY MEASURES
A. Financial Intermediation
Overall credit growth continued to decline in the first quarter of 2009; The causes of thisdecline, however, are difficult to determine. At this point, the supply effects cannot be
distinguished easily from the demand impact of the global slowdown (Table 5). While banks
have sought to preserve liquidity in the face of future uncertainties, credit demand has also

21
fallen as a result of the global slowdown in economic growth. As stabilization policies aremaintained and private expectations about continued financial stability and banking
soundness improve, credit expansion should begin to recover.
Table 5. G-20: Growth Rates of Net Credit to the Private Sector(Quarter on quarter percent change)

Argentina
Australia
BrazilCanadaChina
Euro Area
India
Indonesia
Japan
Mexico
Korea
RussiaSaudi Arabia
South Africa
United Kingdom
TurkeyUnited States

2007Q3
10.4
4.1
11.7
1.6
4.1
2.2
5.8
6.6
0.4
6.1
2.9
11.4
7.1
6.0
4.6
5.9
2.9

2007Q4
9.2
5.3
2.9
2.8
1.8
3.6
5.5
6.0
0.5
2.1
2.5
10.0
5.4
4.4
3.2
7.6
2.7

2008Q1
4.6
2.9
11.8
4.1
5.1
2.8
9.7
4.7
-1.2
-1.4
4.6
8.3
8.3
1.6
5.6
10.1
1.6

2008Q2
6.6
4.0
1.4
-1.0
3.4
2.2
2.0
10.0
1.5
3.4
4.7
9.5
10.2
3.1
0.7
7.3
-0.1

2008Q3
4.7
2.9
9.1
0.3
2.9
1.5
5.3
8.1
-1.5
-1.5
3.7
8.3
5.5
3.3
3.2
5.2
0.7

2008Q4
2.7
2.2
4.9
1.9
1.7
1.4
3.6
4.8
2.4
1.4
1.0
6.1
0.8
1.5
5.0
0.0
-0.2

2009Q1
2.7
1.8
1.3
…
14.0
0.5
5.3
-0.7
-1.2
-0.1
1.9
2.7
-0.8
2.2
0.0
-0.2
1.0

Source: IMF, International Financial Statistics.

The ongoing increase in nonperforming assets could weigh on the credit expansion (seebelow and Figure 6). As the ongoing economic recovery will reduce unemployment rates andcorporate bankruptcies only over the medium term, some near-term increase in
nonperforming loans can be expected. This increase in nonperforming loans could put
pressure on bank profitability as banks raise provisions against expected loan losses. As aresult, strong earnings experienced by many banks recently are unlikely to be sustainable.
Banks would then likely cut loans to lower-quality borrowers to minimize exposures.
B. Effect of Government Measures on Market Indicators
While the impact of the G-20 policy measures on GDP is difficult to assess, the financial
market view of the evolving measures can be observed. The size and breadth of the public
interventions in the financial system have led to a generalized easing of stress in financial
markets, but conditions still remain far from normal. Liquidity facilities administered bycentral banks, public debt guarantee, and recapitalization programs have stabilized private
confidence, and the sharp spikes in risk aversion have eased. Major market indicators havecome off historical highs, but remain above historical averages.

22

Public interventions and guarantees have eased pressures on repo and other interbank
markets since September 2008. Lehman Brother’s bankruptcy in September 2008 led to amajor increase in counterparty risk and a large contraction of repo operations amongst
European, U.K., and U.S. banks. As a way to boost liquidity and offset the contraction in
repo operations, central banks significantly expanded the pool of collateral that they use in
their repo and reverse repo operations. In addition, government guarantees lowered
short-term funding costs.
As a result, Libor rates responded positively to official measures. After spiking in
September 2008, three-month Libor rates narrowed thereafter in response to the various
support programs (Figure 4). In most cases, this reflected a reduction in counterparty andliquidity risk, as shown by the spread between the Overnight Indexed Swap (OIS) rate andthe Interbank Offering rates published by the British Bankers’ Association for the major
currencies. Moreover, the swap spread—the average premium required on a vanilla interest
rate swap to account for counterparty risk—has fallen to pre-crisis levels.
The easing of interbank liquidity also set the base for a more generalized improvementof credit conditions in line with central banks’ actions in policy rates. The European,
U.K., and U.S. banks’ debt prices plummeted after Lehman Brother’s bankruptcy. The
October 2008 public interventions and guarantees led to partial recovery, but debt prices
plunged again in December 2008 (Figure 5). Since the February 2009 restructuring and assetmanagement policy measures, bank debt prices have increased to pre-crisis levels, except in
the United Kingdom.
CDS spreads have also eased over the period. The deep uncertainties in Q3:2008 led tohistorically high spreads. Even though public guarantees and bank recapitalization programs
have been successful in easing market concerns about counterparty risk, CDS spreads,
although lower, remain elevated, indicating that credit conditions remain fragile. As themeasures begin to take effect and as the depth of the current global recession becomes
clearer, uncertainties in the market may ease, leading to even lower spreads.
The October 2008 bank debt guarantee programs were key to restoring bank debt
issuance. As spreads have fallen, financial institutions have begun to have their access tomarket financing restored. In Q3:2008, the issuance of nonguaranteed bank debt declined by
42 percent to US$417 billion in G-20 countries. The debt guarantee programs have allowedbanks to partially offset the sharp decline and raise more than US$706 billion in guaranteed
debt in Q4:2008 and Q1:2009. As the financial constraints on banks eased in Q2:2009, banks
resumed the issuance of nonguaranteed debt while discontinuing the issuance of guaranteeddebt.
The easing of financial constraints, together with public support for financial
institutions in Q1:2009, led to a partial recovery in bank stock prices. Bank stock prices

23
showed some recovery from the troughs of early 2009. Prices in the United Kingdom andUnited States fell farther than other bank stock prices and have not recovered their pre-crisis
levels. This may reflect the uncertainty related to deteriorating macroeconomic conditions
despite the comprehensive restructuring and asset management support measures announced
in both countries in Q1:2009, and uncertainty regarding bank business models and future
regulatory changes.
V. CONCLUSION AND RECOMMENDATIONSThe March 2009 stocktaking paper recognized progress in stabilizing credit
expectations and recapitalizing distressed banks but made a series of recommendations
aimed at intensifying and accelerating the recovery process. Those recommendations
included (1) the establishment of mechanisms for coordinating restructuring policies; (2)development of a comprehensive diagnosis of the financial institutions; and (3) establishmentof restructuring strategies that addressed the valuation of distress assets.
Limited progress has been made in the second phase of crisis management:Formal policy cooperation remains at an early stage. In many cases (particularly
outside of the EU), it has largely been through low-key and existing channels, which
has had only a limited impact on public perceptions of the consistency of reform
programs across countries. Only limited progress has been made in the coordinationof policy responses.



The stress tests for individual institutions have been initiated in a few jurisdictions
and the results have been tied to a recapitalization or asset guarantee program;
however, specific full-scope diagnosis of financial sector systems remains limited.



Restructuring and asset-management programs have been initiated, but many
programs are still at an early stage of implementation.

Despite the limited progress, financial markets have responded positively and havestabilized. CDS spreads have eased and the October 2008 bank debt guarantee programs
have allowed banks to resume the issuance of nonguaranteed debt. The easing of financial
constraints, together with public support for financial institutions, has led to a partial
recovery in bank stocks.
While the easing of interbank liquidity may gradually ease credit conditions, increases
in nonperforming loans may be expected to dampen the pace of credit intermediation.
The ongoing economic recovery will have an impact on unemployment rates and corporatebankruptcies only in the medium term. This could put pressure on bank profitability in thenear term as banks raise provisions against expected loan losses, and would then reduce loans

24
to lower-quality borrowers to minimize exposures. As a result, the pace of credit
intermediation will improve slowly.
Areas for further actions include:

developing mechanisms for coordination of polices, including the disengagementfrom creditor- protection policies;completing a comprehensive diagnosis of the banking system, in particular in light ofthe possible increase in nonperforming loans over coming months;



combining stress testing initiation with policy instruments to address weak banks, so
as to strengthen private confidence; andenhancing progress in developing programs for asset management. While many
jurisdictions have guaranteed distressed assets, only a few have programs to actively
manage them. Strategies should be strengthened for neutralizing legacy or toxic assets
and programs developed to address any spike in nonperforming loans.

25
Figure 4 . Interbanking Lending Rates

Three-Month Libor Interbank Offering Rates
8

Lehman Bros. files for bankruptcy(Percent)

64

2

3 M EURIBOR
3 M CHF LIBOR
3 M GBP LIBOR
3 M USD LIBOR0
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09

Libor OIS Spreads
400
US
UK

(Basis points)

300

Switzerland
EU

Lehman Bros. files for bankruptcy

200

100

0
Jan-07

May-07

Sep-07

Jan-08May-08

Sep-08Jan-09

Jun-0

Counterparty Risk Indicator
180
Bear Stearns gets emergency funds(Basis points)

150

Lehman Bros files forbank ruptcy

120
90
60
2 Year Swap Spread

5 Year Swap Spread30
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09

Source: Bloomberg and IMF staff estimates

26
Figure 5. G-20: Bank Stock, Bond, and CDS Indices, 01/01/2007-06/30/2009
A. MSCI bank stock indices in local currency
140
120
100
80

(100=01/01/07)

60
40
20
0
J an-07

Apr-07

Jul-07

Oct-07

Latin America

Jan-08EuropeApr-08Asia

J ul-08

Oct-08Middle East and Af rica

Jan-09Apr-09North America

B. Merrill Lynch bank bond price indices110

100(100=09/01/07)
90

80

70
Sep-07

Dec-07Mar-08Global Banking Index
Euro Banking Index
US Banking Index

Jun-08
Sep-08
Aus tralia Financial Index
Japan Banking Index

Dec-08Mar-09Canada Financial Index
Sterling Banking Index

Jun-09C. CMA Bank CDS indices
700
600
500
400
300
200
100
0
Jan-07

Apr-07

J ul-07
O ct-07
United States

Source: Datastream and Merrill Lynch

Jan-08Apr-08
United Kingdom

Jul-08
Oct-08European Union

Jan-09Apr-0927
Figure 6. G20: Non-Performing Assets, 2005-Q2:2009 1/
A. Asia
1210(Percent)

8
6
4
2
0
2005

2006

Australia

2007

Q1:2008

China

India

Q2:2008

Q3:2008

Indonesia

Q4:2008
J apan

Q1:2009

Q2:2009

Korea

B. Europe and Saudi Arabia
7
6(Percent)

5
4
3
2
1
0
2005
France2006
Germany

2007
Italy

Q1:2008

Q2:2008

Netherlands

Q3:2008

Q4:2008

Saudi Arabia

Spain

Q1:2009

United Kingdom

Q2:2009

Q3:2008

Q4:2008

Q1:2009

C. Western Hemisphere
5(Perc ent)

4
3
2
1
0
2005

2006
Argentina

2007

Q1:2008
CanadaQ2:2008

MexicoUnited States

Source: Bloomberg
1/ Weighted average of the 5 largest banks reporting quartely/semi-annual/annual results.

Q2:2009

28
Statistical Appendix Table 1. Steps Taken to Address Priorities in Response to the Crisis

Country

International
Coordination
Measures

Financial
Institution
Condition
Diagnosis -Exercise

Other Bank Debt
Guarantee
Programs

Depositor
Protection

Restructuring andRecapitalization
Asset Management
Program for
Strategy 6/
Undercapitalized
Banks

AfricaSouth Africa

Announced

Unannounced

Unannounced

Unannounced

Unannounced

Unannounced

Australia

Announced

Underway

Underway

Unannounced

Unannounced

Underway

China

Announced

Unannounced

Unannounced

Unannounced

Unannounced

Unannounced

Indonesia

Announced

Underway

Unannounced

Unannounced

Unannounced

Unannounced
Unannounced

Asia

India

Announced

Unannounced

Unannounced

Unannounced

Unannounced

Japan

Announced

Unannounced

Unannounced

Unannounced

Underway

Underway

Korea

Announced

Underway

Underway

Unannounced

Underway

Underway 2/

FranceUnderway 1/

Unannounced

Underway

Announced 4/

Underway

Unannounced

Germany

Underway 1/

Underway

Underway

Announced 4/

Underway

Underway

Italy

Underway 1/

Unannounced

Underway

Announced 4/

Underway

Unannounced

Netherlands

Underway 1/

Underway

Underway

Announced 4/

Underway

Underway

RussiaAnnounced

Underway

Underway

Unannounced

Underway

Unannounced

Spain

Underway 1/

Underway

Underway

Announced 4/

Underway 2/

Underway 2/

TurkeyAnnounced

Unannounced

Unannounced

Unannounced

Unannounced

Unannounced

Underway

Underway

Completed 3/

Underway

Underway

Unannounced

Unannounced

Unannounced

Unannounced

Unannounced

Unannounced

EuropeUnited Kingdom Underway 1/
Middle East
Saudi Arabia

Announced

Western HemisphereArgentina

Announced

Unannounced

Unannounced

Unannounced

Unannounced

BrazilAnnounced

Unannounced

Unannounced

Unannounced

Unannounced

Unannounced

CanadaAnnounced

Unannounced

Underway 2/

Unannounced

Unannounced

Underway

MexicoAnnounced

Unannounced

Underway

Unannounced

Unannounced

Unannounced

United States

Announced

Underway

Underway

Completed 5/

Underway

Underway 2/

1/ The EU Commission has issued guidelines for State aid in favor of banks in context of the current global financial crisis. These address guarantees, recapitalization, the treatmentof impaired assets and restructuring of banks. The U.K. measures are consistent with the EU Guidelines.
2/ Program(s) created but not all have been utilized by banks to date.
3/ No Publication -- Have not or do not intend to publish results of diagnosis.
4/ The EU has announced, in principle, that members would conduct stress testing, but, it is at the discretion of national authorities under direction of CEBS andcarried out to assess the EU financial system's potential resilience to shocks.
5/ Published -- Published results of diagnosis either in aggregate or for individual institutions.
6/ Includes plans covering distressed and non-distressed assets as well as asset guarantee programs.
Explanation of terms:
Announced -- Countries have announced a strategy.
Completed --Countries have announced and completed implementation of strategy.
Underway -- Countries have started implementing strategy.
Unannounced -- Countries have not made any special announcements regarding special actions taken during the current financial crisis.

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Explanation of Calculations:
The methodology used to calculate numbers used in the Tables 1-3 is as follows.
Exchange rate: Monthly exchange rates for each currency were averaged over the period
October 2008– June 2009 and used to convert local currency amounts into U.S. dollars. The
exchange rates were sourced from the IMF’s International Finance Statistics.
GDP: GDP figures for each country were sourced from IMF’s World Economic Outlook(WEO) and the Country Economic and Information Center (for China). GDP data wascalculated as the sum of Q2 2008 through Q2 2009. For countries where nominal GDP data
was unavailable from WEO, real GDP and the GDP deflator were used to compute nominal
GDP. The exchange rate to calculate the U.S. dollar GDP was calculated as the average from
July 2008 through September 2009.