Transcript

Transcript of a Press Conference on the Global Financial Stability Report

October 7, 2008

MR. MURRAY: Good day. I am William Murray, Chief of Media Relations at the IMF, and this is a live press briefing on the latest IMF Global Financial Stability Report. Welcome everybody here in the room and watching via our live web cast. Joining me today is Jaime Caruana, Counsellor and Director of the Monetary and Capital Markets Department of the IMF. With Jaime is Jan Brockmeijer, Deputy Director of the Monetary and Capital Markets Department, Peter Dattels, who is the Chief of the Global Markets Monitoring and Analysis Division, and immediately to my right is Laura Kodres, the Chief of the Global Financial Stability Division.

Jaime will have some brief opening remarks, which we will make available to you at the end, and then we will take your questions. Jaime.

MR. CARUANA: Good morning. Thank you for attending this release of the latest Global Financial Stability Report. I would like to cover two areas in my remarks today. First I would like to provide our overall assessment of the state of the global financial system, and some of the policy recommendations that result from this assessment. Then I would like also to outline the analytical work that we have done for this GFSR and also some policy recommendations.

Since the publication of our last Global Financial Stability Report in April, the global financial system has undergone a period of unprecedented turmoil, and the situation remains fragile. Monetary and financial conditions have tightened further, and risks have risen across the board. Macroeconomic risks continue to rise, as the economic activity is decelerating in advanced economies and as the expansion in emerging economies is losing momentum. As anticipated in our April report, credit quality concerns are broadening across a wide range of financial assets. Although financial firms have recognized much of the subprime-related losses, further potential credit-related write downs are placing additional strains on balance sheets.

Financial institutions' attempt to sell assets as they delever under highly illiquid and uncertain conditions has pushed market and liquidity risks to new highs despite the extraordinary measures that central banks have introduced. Funding in interbank market and commercial paper markets has seized up, reflecting persistent and increasing concerns about counterparty credit risk and future liquidity needs. In addition, doubts about the business models of some institutions is depressing stock valuations and in some cases resulting in mergers or spin offs, ultimately leading to consolidation in the financial sector.

In the first chapter of the GFSR, we have examined the deleveraging process currently under way in the global financial system, and its implications for financial institutions and for the real economy. The chapter updates our estimate of the total losses on U.S.-originated assets as a result of the crisis to around $1.4 trillion, an increase on our April number. We have examined various scenarios of deleveraging and reached the conclusion that this deleveraging will require both increased capital and also shedding of assets. We estimate that over the next few years, five years, around $675 billion of additional capital is needed to keep credit growing, even modestly, in the face of the shocks that have struck the financial system.

Finding a purely private resolution of financial market strains has become increasingly difficult, and the piecemeal approach has not alleviated market concerns. In response, more comprehensive approaches are now being considered or implemented.

What we think is that in these unprecedented circumstances, the restoration of financial stability requires a decisive and internationally coherent set of policies. While the precise measures will inevitably differ across countries, lessons from earlier crises indicate some principles that can serve to restore confidence in these exceptional conditions.

First, authorities must employ measures that are comprehensive, timely, and clearly communicated, and that addresses the three relevant areas, the three main issues that we have in financial markets today; namely, strengthening the capital base of viable institutions, the second is buttressing troubled assets by using public sector balance sheets; and the third is improving funding availability, mainly term funding, to stabilize bank balance sheets. These measures can differ across countries, with different degrees of public sector funding and support, but the objectives should be clear and operational procedures transparent.

Secondly, we should not lose sight of the objective of a more sound, competitive, and efficient financial system. Achieving this objective requires both an orderly resolution of nonviable financial institutions and also a strengthening of the international macro-financial stability framework to help to improve supervision and regulation at domestic and at global levels, and also to strengthen the market discipline, the private oversight of the financial markets. Funding and securitization markets, critical to pricing and intermediating credit, should be strengthened, including by reducing counterparty risks through centralized clearing organizations.

The most significant risk remains a worsening of the adverse feedback loop between the financial system and the real economy. We think that this comprehensive approach, consistent among countries, should be sufficient to restore confidence and the proper functioning of markets and avert a more protracted downturn in the global economy. We believe that a more resilient financial system will ultimately emerge from the restructuring and deleveraging that is under way.

Just let me say a few words about the emerging markets and about the other chapters of the GFSR. Until recently, emerging market countries have been fairly resilient to the global credit turmoil but now face greater risks. The pronounced reduction in investors' risk appetite has resulted in a retrenchment in short-term capital flows to emerging market countries, exerting pressure on local markets, and sharply raising the cost of credit. When taken together with slowing global growth, these pressures create a very challenging environment for some countries. Those economies with greater reliance on short-term flows or with leveraged banking systems funded internationally are particularly vulnerable.

The fourth chapter examines the potential spillovers of global economic factors to equity markets in these countries. The chapter finds that spillovers to emerging equity markets have risen, suggesting a growing role for global factors in explaining equity price movements in emerging markets. It also shows, I would say, fortunately that the effect on real consumption and investment from changes in equity market wealth in emerging markets are still low compared to advanced countries and tend to play out gradually.

Turning now to the other chapters, the second chapter examines the persistently high interbank rates that we have seen in advanced economies since August last year as a result of bank distress risks, which could be defined as a combination of credit and liquidity risk. The chapter finds that the interest rate transmission of monetary policy has been severely hindered over the past year, particularly in the United States, as funding markets have seized up. This could well be the result of banks' increased reliance on short-term market funding rather than more stable retail deposits, and the greater importance of near-banks in financial intermediation. Going forward, it is likely that the interest rate transmission of monetary policy may remain for sometime less reliable.

Finally, the third chapter reviews the principles and application of Fair Value Accounting, and the importance of that in procyclicality and the impact of Fair Value Accounting on bank balance sheets. The chapter finds that the application of the Fair Value Accounting framework is still the way forward, but further enhancements are needed to help mitigate the exaggerated effects of some valuation techniques.

Thank you. My colleagues and I will be now ready to take your questions.

QUESTION: Three related questions, if I may. First of all, what signs do you detect, Mr. Caruana, of the concerted global action that the report and you have recommended actually beginning to gel ahead of these meetings? Do you think a concrete plan for action will emerge in the next few days?

Secondly, do you think that the events of the past 24 to 48 hours have reduced the chance of banks being able to raise the $650 billion in capital that you suggest is necessary themselves, therefore making more of that likely to have to come from public funds?

Thirdly, if I could refer to the table on page 21 where you suggest that $2 trillion in purchases of toxic assets might be needed, is that a recommendation that that should happen to reduce the credit crunch effects that you set out in Table 1.4 or is it merely a model? Thanks.

MR. CARUANA: I think what is happening in financial markets is quite unprecedented, and we are in favor of concerted and coordinated action. We think that the policies should be consistent cross border, and that is basically one of the messages. This kind of coordination in different areas, and when we mean coordination, we do not mean necessarily that all countries have to apply exactly the same measures, but we think that the three areas that we mentioned - the area of capital, the area of funding, the area of distressed assets, difficult to value, illiquid assets - directly or indirectly need to be tackled in these approaches. So we think that some common actions, some concerted efforts in the sense of being consistent through countries is very important, and I think the fragility of the system is a good incentive towards doing that. So we really hope that this will be happening.

Second, what we have tried to do in the GFSR, and I hope you find it useful, is to try to analyze different scenarios of deleveraging. I think it was very important, deleveraging has been happening in the financial markets for more than one year, and this is a very important process. It is a necessary process to move from one system that had excessive leverage to a system that is sounder, that is healthier. So it is painful, but it is a necessary process. What we tried is to put numbers to this idea and tried to see what are potential alternative paths, and that is what you have there in the chapter. It is just scenarios that make sense. What we have there has been discussed with different market people, with different authorities so that it makes sense, it is coherent, and gives clear messages.

The clear messages that we are saying is, first, that it will require acting in different ways. One is capital. Capital will be required. The $600 billion plus is an estimation, but it means that it is a significant amount of capital that is required, but also that in addition to this capital it would be required to sell some of the assets that are now in the banking system out of the banking system. We also think that this combination of the two-point-something-trillion sales plus the $600 billion plus would allow the financial system to deleverage in a way that could provide support to growth. The banking system would then be able to provide some credit growth that would help the economy. So we think that these are the scenarios. I would not change these scenarios just because what is happening in recent days. I think these are a very consistent set of scenarios, and I hope again that you will find this analysis of scenarios useful because we tried to put numbers to what we all are talking about deleveraging.

QUESTION: I had a question from the IMF's potential role, and if the financial system continues to deteriorate there is a possibility that IMF funds might be required again. I notice that the Institute for International Finance had said that IMF facilities are perhaps too focused on balance of payments crises. I know that you guys are thinking about broadening them out. I just wondered if you could tell me whether the IMF needs to adjust its facilities in order to ensure that it can provide maximum health at the moment.

MR. CARUANA: I think there will be other press conferences where this can be tackled in a more detailed way, but let me say that the Fund is in the process of reviewing their liquidity facilities and that one new rapid liquidity facility has been discussed, and probably this turmoil will give some momentum to discussing it further, and that also the Fund stands ready to use the present facilities with enough flexibility to help if necessary, but I think there will be other press conferences where these kind of issues can be tackled more in detail.

MR. MURRAY: That is a good question. On Thursday the Managing Director will be right here at 9:00 Thursday, and I think that would be a good time to ask him about that.

QUESTIONER: My question is during this financial storm, what do you think can the sovereign wealth funds play in maintaining the stability? We know that the sovereign wealth funds from China and the Middle East are very, very active on the world financial stage right now. What is the view on that? Thanks.

MR. CARUANA: I think sovereign wealth funds are institutions that have to look for their own profitability and risk analysis as commercial entities, so it should not be political, their decision should be based on commercial reasons, and that is what it is. But I think that the important point is that these institutions have a long-term horizon, and I think they can play a very important role in stabilizing some of these market conditions. I think it is very important in financial markets to have different kinds of financial investors with different strategies and different time horizons, and at this very moment where perhaps people are too much concentrated on the short run and on the concerns, short-run concerns, I think institutions that are able to look to longer time horizons probably could play a very important stabilizing role. So I hope that at some point of time they think that it is in their best interest to find what are the distressed assets that are at a good price, and they can step in and help to stabilize financial markets. But, again, I would emphasize that this is basically because they have a longer term, usually they have a longer time horizon, and that is a very important contribution to financial markets.

QUESTION: In the report you said the piecemeal approach has not worked, and so the United States has taken a more comprehensive approach to this. What should Europe do? What is your recommendation? Should they create some kind of vehicle to buy these distressed assets? Thank you.

MR. CARUANA: I think, again, we will not be very prescriptive on what they should do. We would emphasize that they should act directly or indirectly in the three areas that we have told, and that coordination could be improved. I think it is absolutely essential that the coordination among the European countries is improved, and again that wouldn't imply that the same solution has to be applied to each country because countries in the European Union have different structures, have different institutions, so you can never get the same kind, but the same framework and consistent frameworks, so what happens in one country does not spill over to the countries close to it, I think is extremely important. More can be done in that regard.

QUESTIONER: Can you talk a little bit about the functioning of the credit default swaps market which we saw was one of the main factors for the turmoil we have seen in the last few weeks? How can it function normally and do we need a central clearinghouse really?

MR. DATTELS: .It is clear that counterparty risk has really come to the fore in this market, and the concerns about AIG and the failure of Lehman have created a significant lock-up in money markets more generally, so reducing those gross amounts of counterparty risk on both sides of trade is clearly important. The initiatives that are being considered at this moment are essential, and that is a central clearing arrangement that would reduce counterparty exposures in the CDS market significantly.

MR. CARUANA: Could I add that there has been progress in that, significant progress, and that it seems that some kind of clearing system still could happen, not in the very far future. So I think there has been progress in that camp, and we really think that this is very relevant, very important.

QUESTIONER: I am mostly interested in the post-Soviet space, so my question is somewhat parochial, where do you see the biggest risks there and can Russia play the role, the traditional role of a [inaudible] for the countries in the region? Thank you.

MR.CARUANA: I am sure that many of you would like us to go to countries analysis, and there are good reasons to do that, but I think there will be other presentations that will address more regions and countries. In addition to that, I think the message that we want to bring today is that this has a global component in terms of financial markets, which is very important to emphasize, and that is what we have tried to analyze in the Global Financial Stability Report.

In any case, I think we also address the issues of some markets, and basically those countries that do have more exposure to the banking system, have more exposures to financing cross border are the countries that need to pay attention to these banking systems. Fortunately, in many cases the balance sheet of the central bank has sufficient reserves so as to provide with the necessary cautions and the necessary support.

But, again, I would not enter into the details of the situation of countries. That is important, but our message today is more global, and the message is, again, that the coordinated action can help to alleviate what are now at the very moment very difficult situation on financial markets.

MR. MURRAY: I am going to turn briefly to the Media Briefing Center. We have some pending questions there. This is from a journalist based in London, and it is regarding monetary policy and liquidity. "You say the transmission mechanism of monetary policy has been impeded. Would rate cuts by the Fed, ECB, or BOE have any real impact or is liquidity aid more important? "

MR. CARUANA: Let me say that both are important and that the monetary policy is not impeded, monetary policy continues to be effective, but I would like to ask Laura to expand on that chapter and what are our conclusions.

MS. KODRES: Chapter 2 looks at exactly this question and whether the interest rate transmission of monetary policy has been affected by the crisis, and indeed we do find that the policy transmission mechanism through interest rates has been quite a bit more volatile following the July 2007 event. What that means is not that necessarily monetary policy is less effective, but it means that it is less reliable. Both increases and decreases of the interest rate may or may not influence these other rates that are between the Fed funds rate or the ECB's rate and final borrowing rates. What we found was these intermediate rates, namely those associated with commercial paper or bank borrowing or ABCP, asset-backed commercial paper were impeded or were more volatile, although at the end of the transmission mechanism, those rates associated with consumer borrowing and corporate borrowing, were less altered by the transmission mechanism. That could be due to a number of factors; namely, that central banks are more dependent now on these near-banks for the transmission of interest rate policy, though it can still be the case that transmission happens all the way through to the consumer rates, but it happens in a more lagged fashion.

We found that in general the U.S. rate transmission was slightly more unreliable than those in the euro area to date, and most of these intermediate interest rate spreads will remain elevated or remain variable until the underlying causes are, in fact, taken care of, and those underlying causes are more related to the solvency and the credit counterparty risks that are present in these near-banks and the financial sector more generally. Thank you.

QUESTIONER: Your estimates of possible losses seem quite small in relation to the total amount of funds in the market, so to speak. One looks at the size of the derivatives markets, the size of funds under management, talking about scores of trillions of dollars. Now I am trying to get a handle on how far this could ramify into the global financial system eventually. We have seen linkages continually arising. Are these estimates that you have given your final estimates, as it were, of how far the contagion could go or could it go significantly further?

If I could very quickly ask you about your comment also that in emerging markets the effects so far on private consumption and investment seem to be statistically significant but small. Presumably as the commodity price fall gets under way, that could change, could it, significantly?

MR. CARUANA: I will ask Peter and Laura to address the two questions, but basically I would like to say that the calculation of losses is on U.S. assets that may be distributed around the world, but it is on U.S. assets, that is the calculation. Most of it comes from market prices. So at least all the part that is securitized products. But I will ask Peter to explain a little bit how is it calculated and how sensitive is it to some of the market movements.

MR. DATTELS: I think the best way of looking at this is in terms of how the crisis has evolved. If we look at the question of the subprime loans and related securities, the losses that we are projecting are something on the order of about $600 billion from that part. So then what we took a look at in terms of the analysis of the chapter is to see, how we are moving into this economic downturn; how far are delinquencies and charge off rates going to rise and how much additional pressure is that going to put on the banking system and financial institutions more generally? The number we are looking at is the $1.4 trillion that we have in the report. Now, as we look at what is happening in Europe, then we are asking what will the global economic downturn do to the default cycle there and the pressure that that is putting on European banks and European banks' profitability which have already been exposed to a significant piece, say 40 percent, of those subprime losses. They have taken the hit on the capital from their U.S. holdings, and they are subject to default cycle in their own economies. Now, we haven't extended the analysis to Europe in terms of presenting the numbers, and we might take that up in the next GFSR.

In terms of the derivative exposures, that was the question on the CDS, of course there is a fair bit of netting out across the financial system, so we are really just talking about the debt and the securities as presented in the table.

MR. CARUANA: And just to add, the equity is not included in this calculation.

MR. DATTELS: Correct. Absolutely.

MR. CARUANA: Laura had to answer the second one.

MS. KODRES: On the stock market wealth effects in emerging market countries, our analysis basically looks at whether or not these wealth effects are larger or smaller than those that are associated in the advanced countries. In general, they are smaller, so, for example, in an emerging market context, a 10 percent change in equity market wealth would imply about a 0.12 short run impact on consumption or about 0.21 percentage point increase or in this case a decrease in consumption based on a fall in equity market growth. That compares in the U.S. to numbers that range somewhere between 0.3 percentage points to 0.7 percentage points, so it is about half, a little less than half, than the effect that you would see in an advanced country. That takes place over a period of time.

I think the reason that we might not see too much impact on real consumption and investment is primarily because in these countries the stock market wealth is not broadly owned by the populous as a whole. It tends to be owned by wealthier households and other corporations, and in addition what we found is that other factors, such as what you noted about commodities and other factors like that, are probably going to have a larger impact, so the stock market is maybe not the largest transmission to the real economy in these countries, at least at this point. Thank you.

MR. MURRAY: Thanks, Laura. We are going to go to a question on the Media Briefing Center, it is regarding state intervention as an overarching message from this GFSR.

"In the past the IMF has been reluctant to suggest state intervention. This GFSR reads as a license to wide-ranging intervention. Is that a prudent way to interpret this report?"

MR. BROCKMEIJER: No, I do not think that is quite a right way to read it. This report very much reflects the very exceptional circumstances that we are witnessing, and under those circumstances you have to apply measures that maybe go further or are more far-reaching than you would under normal circumstances. I think you should very much read our advice in that light.

QUESTIONER: Can you just give me your reaction to the news in Germany and Ireland to guarantee deposits for savers?

I also wonder whether you can just clarify, when you are talking about recapitalization, are you saying that you expect this will come from the private sector or are you assuming some kind of public sector need for recapitalizing banks?

MR. CARUANA: When we mention the figure, we are not saying where it comes from, but if you read the report, you will see that we think the private sector for some time it is going to be difficult for them to be able to solve the situation, so we are thinking that what may be required is assistance from the public sector for this recapitalization to happen.

On the deposit guarantees and the measures that have been taken, let me again emphasize a few things. One is that we are talking here about a severe drop in confidence among financial institutions. That is a very important element, and in that situation to restore confidence is really of the essence. So in some very special circumstances, the idea of extending the deposit guarantees is an approach that can help to address these kinds of situations. What we are saying also is that it is very important that in the European context, this should be more coordinated so that the spillovers that you may have from one decision in one country do not affect necessarily the other. I know that your question was more short term and what different institutions and different countries basically are doing, but I would like to take this opportunity to say that the deposit guarantees in Europe is one of the most important reforms that in the medium term have to be tackled.

There must be some harmonization, full harmonization of the deposit insurance among the different countries. This is very, very important, not only for this situation for managing crisis, but also for the integration of the financial markets in Europe. So I think this is a very key question.

QUESTIONER: Please two questions. I have the impression that the figures you gave today are quite higher than the ones that the Financial Stability Forum has given to us just a month ago. Is that because in the meanwhile the situation has been deteriorated or because you use a different model or different calculation? This is the first question.

The second, please, among the worldwide financial situation, do you have any figure for Europe? In other words, is it possible to calculate the contagion effect in Europe, please? Thank you.

MR. CARUANA: Thank you. Yes, the figure that we gave in April was a little bit below $1 trillion. In July in the update we said that we may revise that slightly, but not too much. However, after the events basically in late August and mainly in September, we had to revise this figure with the same methodology, basically the same methodology, we revised it to $1.4 trillion. So it is the same methodology. The situation has deteriorated. That means that the spreads and the prices of some of the instruments have come down, and then there have more losses in markets. Also, the analysis of the cash flows on loans have also indicated that their losses could be a little bit higher, so if you see the table and you compare the table with the previous one, it is the same methodology, but giving a higher loss.

I am sorry, I do not know what you want to compare our figure with. The figure that we have been following and you can track, that is our own methodology and our own figure. I am not sure the figure you are talking about, sorry.

QUESTIONER: The figure of the Financial Stability Forum, the new group that has been set up by the G-7, that is what I was talking about.

MR. CARUANA: I do not know exactly what the figure is, so I am sorry.

QUESTIONER: Never mind. What about Europe?

MR. CARUANA: Pete, could you address how this splits for Europe.

MR. DATTELS: Could repeat the question? Roughly speaking, Europe is sharing something on the order of about 40 percent of the subprime losses reported by banks. But going forward, the additional losses that result from the spillover to the broader economy, including as corporate spreads have widened out, that share is going to be substantially more borne by U.S. financial institutions. But what is not covered in the loss figures, is the downturn in Europe, and the losses that European institutions will be absorbing in terms of their own default cycle as a result of the weakening in the household and corporate credit at this point, so I am just adding a note of caution there.

MR. CARUANA: May I add that there is not that much precision on that figure. At the end you come up with one figure, but I think the importance about this figure is not so much whether it is 1.4, it is the fact that it captures not only the subprime but it also captures the deterioration in the cycle and deterioration in the growth of the economy. That was the purpose of doing this kind of exercise, trying to measure not just the subprime but to put it in a broader context, the context that the economy is also decelerating, and you see how important are both concepts: the initial shock but also the ramifications of that shock in terms of growth. So that was the purpose. The exact figure should be taken as just an approximation of order of magnitude, and I think that is the way to read the figures that we have put forward.

QUESTION: Would you please give us an assessment on how would you expect the spillover of the crisis in Latin American economies?

MR. MURRAY: I think I will jump in here. Tomorrow morning, right here at 9:00, the World Economic Outlook briefing. Olivier Blanchard can address those sorts of questions on region-specific economic impacts.

QUESTION: I have a question here that although in the U.S. the Congress passed, in the end passed the bank rescue plan and the world banks around the world, they really take dramatic measures to try to stabilize the market, but however yesterday the Dow was below 10,000. The market is still full of uncertainty and fear, confusion. So I am wondering, do you think the financial crisis will spill over to other industries and the world economy will fall into recession?

The second question, how to restore the market confidence?

MR. CARUANA: I think that is a very important question.

What we try to say today is exactly how we think that this should be addressed, and we need more set of policies that are consistent through countries, and we need a comprehensive approach, we need to act into the different areas. I think the measures that have been taken in the United States, the plan that was approved by the Congress goes in the right direction, it is comprehensive. It will benefit the financial system and the economy, but still there are elements that have to be worked out in terms of the details on how this is going to work, and I think still it is necessary to know how this is going to play between the asset purchase and the capitalization of financial institutions, and I would say that experience of previous crises point to the importance of putting significant weight to the capitalization of institutions, and I think that the flexibility that contains this package that has been passed allows that. So that would be my first, my reaction.

But of course we need a more comprehensive approach in other areas. We need a comprehensive approach in Europe, we need a comprehensive approach that is coordinated that goes beyond the United States, and that is what I think, we think will reassure markets that they can delever in an orderly fashion and go to a more stable financial system. But that can be done.

QUESTION: I wonder, can you be a little more specific, if this call for coordination fails, Europe will not coordinate at all, there is no coordination between Europe and the U.S., what kind of effects do you see when it comes to spillover effects and so on? Can you be a little bit more detailed about that, please.

MR. CARUANA: We have not made a scenario of that. I think that the risks of the negative feedback loop between the financial sector and the economy relies on how good these measures, how comprehensive are the measures, and also how well coordinated are cross border, and again coordination meaning consistency of the measures. So I think that is the main message. Scenarios on what would happen, we have not done in depth. We think it would be very good. I would put it in positive terms, it will be very positive if the coordination and consistency happens.

MS. KODRES: I would just like to add that coordination is occurring at the central bank level. We tend to focus right now on the coordination across government entities, but the central banks have been coordinating now for quite sometime, particularly the Fed, the ECB, the Bank of England, and the Swiss National Bank, but now that has broadened to a very large number of central banks that are coordinating and attempting to make sure that liquidity and particularly U.S. dollars are distributed to those who need them.

QUESTIONER: Good morning. First a little explanation just to be sure I understand it well. When you talk about the $1.4 trillion, you talk about U.S. loans and assets, so the 40 percent of European part you were talking about is U.S. loans and assets back in Europe, right?

MR. DATTELS: Correct, but the 40 percent applies to the losses that have been reported so far.

QUESTIONER: Okay, right. My question would be if you could suggest the creation of a European fund to address the crisis back in Europe?

MR. CARUANA: We do not want to propose specific measures. I think it belongs to them. But, again, let me emphasize that we are saying that they need to address the three main issues, and one of the issues is the capital, one of the issues is the assets that are illiquid that are in the balance sheets of banks, and again it may not be the case in all the countries, so we are not that specific. But it is very important to come with a common approach on these issues.

QUESTION: Thank you. I wanted to follow up on the question from the Swedish gentleman about the coordination or the lack thereof. Do you see any evidence of a global problem of moral hazard where people would simply refuse to coordinate because they believe they are not to blame for the mess?

MR. CARUANA: I think the situation calls for incentives to be aligned for coordination. I think the situation deserves serious attention on the part of the authorities in terms of moving towards a more again consistent approach, so I am confident that this will be the final approach. I can understand the question, and I can understand that there is always difference, there are many differences between countries, but at the end I think that we have seen what happens in financial markets when responses are not fully coordinated, so I think this will provide incentives for the authorities to move in a more coordinated fashion, and that would prove to be more effective.

MR. MURRAY: Great. Thank you, Jaime. Thanks everybody for joining us today. I want to thank Jaime's team from the Monetary and Capital Markets Department. If you have any follow-up questions, both journalists here and those watching via the webcast, send an email to media@imf.org, and we will follow up for you. Again, tomorrow 9 a.m. here for the World Economic Outlook briefing.