Transcript

Transcript of a Press Conference on the Analytic Chapters of the Global Financial Stability Report

April 11, 2013

Webcast of the press conference

MS. STANKOVA: Hello, everybody. And thank you for coming today to this press conference on the release of the Analytical Chapters of the Global Financial Stability Report.

We are releasing today, two chapters: Chapter 2 and Chapter 3. Chapter 2 is "A New Look at the Role of Sovereign Credit Default Swaps" and Chapter 3 is "Do Central Bank Policies Since the Crisis Carry Risks to Financial Stability."

Let me introduce today's speakers.

To my extreme right is Jan Brockmeijer, who is Deputy Director in Monetary and Capital Markets Department. And he oversees analytical work in this area. Next to Jan is Brenda Gonzalez-Hermosillo, who is the lead author of the Chapter 2. And next to Brenda is Erik Oppers, lead author of Chapter 3, on central bank policies. And to my immediate right is Laura Kodres, Assistant Director in Monetary and Capital Markets Department. Laura oversees work on analytical chapters of the Global Financial Stability Report.

Jan and Laura will make introductory remarks, and then we will take your questions. So, with that, I will pass the microphone to Jan.

MR. BROCKMEIJER: Thank you very much, Olga.

I'm sure you're aware that this is, you could say, a partial publication of the Global Financial Stability Report. These are the analytical chapters that we publish separately from the conjunctural chapter.

Today I have the pleasure in introducing the team leaders that have done the work on Chapters 2 and 3, and I would like to remind you that Chapter 1 -- so the conjunctural part of our Global Financial Stability Report -- will be released next week, on Wednesday, 17th of April.

As usual, it's important to realize these analytical chapters tend to take a step back, and place topical financial stability issues in a somewhat longer-term perspective. The recent crisis has been characterized by a rising credit risk of advanced-economy governments as they have tried to contain the impact of the crisis on their economies and their financial sectors.

One way market participants are responding to this risk is through increased use of the sovereign credit default swap market. As you know, the role of this market is not without controversy. Critics insist that the increased use of sovereign CDS has led to speculative excesses, higher sovereign funding costs, and financial instability. Defendants, on the other hand, contend that it provides an important tool for risk-management, and is a useful market-based indicator of sovereign credit risk.

Chapter 2, which carries the title "A New Look at the Role of Sovereign Credit Default Swaps" takes a step back, and tries to evaluate these two positions, and the recent policy actions undertaken, by analyzing the available data. In a way, you could say that the chapter tries to demystify the sovereign CDS markets.

And one important conclusion that the chapter reaches is that sovereign CDS spreads tend to reflect the same economic fundamentals and market factors as do sovereign bond spreads. And overall, as a consequence, it comes to the conclusion that they share many of the same drivers as the underlying bond markets, and are as volatile as other financial markets, but not particularly so. So, there are no clear cases to single them out for special treatment.

The other chapter, Chapter 3, which carries the title "Do Central Bank Policies Since the Crisis Carry Risks to Financial Stability?" looks at the potential undesirable side effects for financial stability of what is now half a decade, already, of ultra-low interest rates and unconventional measures.

The chapter primarily focuses on the functioning of the markets in which the central banks have intervened, and on the potential risks to the health of the banking systems of the four main regions -- the euro area, Japan, United Kingdom, and the United States. The focus of the banks, after all, reflects that they are the largest set of financial institutions in each of these regions, and are the main conduit for monetary policy -- and hence deserve special attention.

Within this area of focus, the chapter, as yet, finds little evidence of immediate degradation of financial stability, but it does point to a number of risks over the medium term. These will require careful monitoring where necessary, followed by prompt use of prudential measures.

Of course, it's important to realize that there are other potential financial stability side effects beyond those that are being discussed in the chapter, such as the potential for mis-pricing of credit of other assets, or excessive capital flows into emerging market economies. These are topics that will be covered in our Chapter 1 of the GFSR. So to have a discussion on our views with regard to those potential financial stability risks, I would ask you to be patient until next week.

With this introduction, I'm happy to turn over the microphone now to Laura Kodres, and also to her team leaders, Brenda Gonzales-Hermosillo and Erik Oppers.

Thank you very much.

MS. KODRES: Thank you, Jan.

Allow me to provide a few of the basic take-aways from our two chapters.

As regards our look into sovereign credit default swaps, let me start by noting that this market has been unduly maligned, and does not fully deserve the poor reputation that has been attributed to it. Before I get into how we arrived at this conclusion, let me refresh your memory about what these markets are all about.

A sovereign credit default swap is, in effect, an insurance policy on sovereign debt obligations. The seller of this protection is on the hook to compensate the purchaser for losses associated with credit events, such as payment defaults and debt restructurings. In return, the buyer pays a premium for this protection, just as a homeowner pays a premium for fire insurance in case their house burns down. Clearly, the more likely a government is to run into some sort of credit difficulty, the higher the premium.

Of course, in the case of credit default swaps, unlike homeowners' insurance policies, you can buy credit without owning the underlying government bonds, and you can sell the protection also without owning the government bonds. Since sovereign defaults and restructurings are rare, mostly the contracts are used to hedge or trade the credit risk of sovereign entities, or companies whose risks are related to sovereign risks, over time.

Okay, having run through a very short course on what a sovereign credit default swap is, let me tell you what we found in our study.

We took a careful look to see if some commonly heard criticism about this market were valid -- especially because it has received a lot of attention lately because of the higher perceived credit risk of some advanced-economy governments. We examined three questions.

First, are the sovereign credit default swaps premia, or spreads, as good as bond spreads in reflecting macroeconomic fundamentals that characterize sovereign risk?

Two, are these markets as efficient as sovereign cash bond markets in rapidly pricing-in new information?

And, three, are these markets more likely than other financial markets to be destabilizing?

In short, we found that credit default swaps reflect the same basic macroeconomic fundamentals of credit risk of governments as do their related government bonds. As regards to the signaling power of sovereign credit default swaps, we find that they incorporate information just as fast as government bond spreads, but moved somewhat faster during some periods of stress, mainly for a few euro area countries.

As regards our final question -- are they more likely to be destabilizing? -- our conclusion is a bit more difficult to come by. We find some evidence of overshooting, by which we mean, either sovereign credit default swaps or government bond spreads move more than our model says they should. We find overshooting in both markets for five euro area countries -- Italy, France, Portugal, Spain, and Belgium -- during the height of the euro area debt crisis. However there is no pervasive evidence that this overshooting affects the cost of government debt, a main concern for governments trying to minimize their debt burden.

Overall, we find it quite difficult to isolate sovereign credit default swaps as the perpetrator of contagion. Many markets seem to be distressed simultaneously, and interconnections across them make it particularly difficult to pinpoint a starting location.

Hence, on balance, our study shows that credit default swaps are receiving a bad rap. They are no more or less effective at representing the credit risk of governments than are the governments' own bonds. They are slightly faster at embedding information, and only during stressful periods. And, while there are some selected cases in which they overshoot their model predicted values, they do not appear to influence government bond issuance costs, nor deserve to be singled out as a cause for contagion.

Based on this analysis and the empirical evidence we collected, there is not a clear case to single out this particular market for special treatment, as the recently initiated European Union ban on uncovered protection buying has done. Such naked protection buying, which is similar to short-selling, occurs when investors who don't own the underlying bonds buy protection on them, profiting when the government's creditworthiness declines.

To the extent there are residual concerns about how the sovereign CDS market functions, we believe these would be best treated by implementing the global over-the-counter derivatives reform agenda that has already been endorsed by the G-20. Putting more collateral behind over-the-counter derivatives, or moving them to central counterparties would make them safer to use, and would not disenfranchise a specific type of investor, as the ban does. Also, more disclosure would help.

Our second chapter examines some of the financial stability risks attributable to the unprecedented monetary policy conducted by four central banks -- the Bank of England, the Bank of Japan, the European Central Bank, and the Federal Reserve of the United States.

The chapter focuses on the effects of these policies on the markets in which these central banks intervened, and their domestic banking systems. The very recent additional quantitative easing announced by the Bank of Japan could not be included in the empirical analysis, but we find it unlikely to alter the overall findings, or the policy advice.

The bottom line is: so far so good. The low interest rates, and the purchase of various types of securities by these found central banks have put a floor under their economies, boosted activity, and helped stabilize the financial system. But if the time those central banks have provided, through their unconventional policies, is not used productively by financial institutions and their regulators, at some point we can expect another round of financial distress.

The chapter examines the use of forward guidance, in which central banks signal their desire to keep interest rates low for an extended period of time, and large-scale asset purchases that have helped provide liquidity and stabilize specific markets, such as the interbank market and the mortgage market. We term the combination of these two sets of policies as "MP-plus," or monetary policy-plus. Our analysis looks at the effects on specific markets in which the central banks have intervened, and how the banking systems have fared. We focus on the banking systems, since without a healthy banking system, the ability to steer credit toward economic activity is limited.

Evidence from the chapter shows that, by and large, the domestic banking sectors have benefitted from these central bank policies. An examination of bank-level data in the United States shows that most short-term balance sheet health improved with the use of these MP-plus policies. There are some concerns that while improvements in bank soundness are present in backward-looking balance sheet measures, that looking forward, banks may have taken on significant interest rate risk. Many banks have loaded up on government debt lately, since finding safe borrowers has gotten more difficult, and government debt serves to satisfy various liquidity requirements.

With interest rates so low, a rise could mean losses on some of these holdings. Markets may be alert to these risks. We found that the announcement of various monetary easings tended to raise the spread of bank bonds over government bonds, possibly indicating that markets saw some future credit risks for banks from these policies.

While the chapter suggests that these vulnerabilities are not yet very visible in the banking sectors, there may be risks building up in the non-banking sectors, such as in insurance companies and pension funds, and other so-called "shadow banks." Chapter 1, to be released next week, will provide some details here. As well, as is customary, that chapter will examine whether and where risks are building up in emerging market economies -- some of which can be loosely tied to the monetary conditions in the advanced economies.

From a policy point of view, it will be very important for central banks and macroeconomic overseers to keep track of the situation. With the economic recovery still fragile, the current policy stance is appropriate, and there is no indication, for now, that exit from these policies is imminent. If risks are building up in various sectors or institutions, judicious use of micro- and macroprudential policies would be warranted -- though it is worth mentioning that some macroprudential tools have not been thoroughly tested in advanced economies, and a mix of policies, including monetary and fiscal policies, would need to be adjusted as the economy strengthens.

Even though we do not see a need to alter the current stance of monetary policies, the eventual exit will need to be executed extremely carefully. To date, there's no reason to believe central banks cannot do this, but they have kept rates low for a long time, and the size of central bank balance sheets has become quite large. The entrance to this set of monetary policies was unconventional, and so, too, will be the exit.

In an earlier paper, the IMF provided some guidelines for a smooth exit, and we repeat some of those principles again. In particular, central banks will need to be sensitive to market functioning, and communicate clearly their intentions. With long-term rates so low, it is unclear how expectations of market participants will respond to early signs of a tightening.

We are confident, however, that the operational and communications tools at use in central banks are better now than they were in previous years, and so a smooth exit, when appropriate, is still the most likely scenario.

Thank you.

MS. STANKOVA: Thank you, Laura, and thank you, Jan.

Now we are ready to take your questions. Please introduce yourself and your affiliation when asking a question.

Yes, I thought you had a question.

SPEAKER: I can go for it. I have two questions, one on the CDS.

You said that it would be better to wait for the OTC reforms to go forward. But as this reform proves very slow now, do you think that it is wise to leave this CDS unchecked without any regulation, especially the naked CDS?

And on the central banks, given that the BoJ has announced a new round of consecutive easing, whereas the Fed seems ready to scale back its operation, how do you expect the central banks to coordinate their exit strategies?

Thank you very much.

MS. KODRES: Okay, let me take the first question. The question is whether the OTC derivative reform efforts are moving too slowly, and whether something should be done about sovereign CDS market in advance of that.

We would say that the OTC derivatives reform efforts are moving ahead. And, while they appear to be moving ahead slowly, they are, in fact, moving ahead. And, in fact, on March 11th, we had our first sort of big-bang, if you will, of having OTC derivatives' being cleared properly for the major participants. And soon we will have that for a second layer of participants.

So that is, in fact moving forward -- maybe not as fast as one would like, but, still, there's forward progress there.

In terms of whether the sovereign CDS market should be pinpointed in advance of that, we would suggest that -- no. In fact, the reforms that are going to be in place for the OTC derivatives market are also applicable to the CDS market, and so everything would be at the same rate. And we find that an attractive feature, that that would be coordinated, both globally and across the different asset classes.

In terms of the points that you make about the Bank of Japan and the Federal Reserve Board, in terms of their recent announcements, I would just make a note of caution that, in fact, the Federal Reserve Board in its announcement yesterday said that they would continue their purchases of government securities and of mortgage-backed securities along the same lines as they have in the past. So, they are not, in fact, unwinding any of the unconventional policies at the moment.

There was a discussion in their minutes that suggested they are thinking carefully about how that exit might take place when, in fact, they deem it appropriate, and under what conditions they would promote such an exit. And I would suggest to you that just the fact that they are having that conversation is an important signal that some of the recommendations that we're making in the chapter are coming to fruition -- that is, that an exit be well communicated, and that an exit be well planned, in advance, so that markets can fully adjust to whatever that exit strategy ends up being.

As you note, the Bank of Japan is undertaking even more aggressive unconventional policy. We view that as appropriate, given the persistent deflation that has hampered the adjustment in Japan for the last decade. That said, that policy does represent some unavoidable risks that will be carefully monitored. In particular, they will need to monitor market functioning, including in the government securities market. They will need to monitor the effects that that might have on their financial sector, to ensure that, to the extent that banks need to improve their soundness, that those actions are undertaken in a timely fashion, even when there is very ample liquidity in the marketplace.

So, we would not want to see a delay, for example, in structural, fiscal, or financial reforms as a result of using the unconventional monetary policy.

I think I'll stop there, and ask if Jan has some additional comments?

MR. BROCKMEIJER: Yes, just one short addition on your second question, with regard to the coordination of exit strategies.

I think the point to keep in mind is that the application of these policies very much reflects the needs of various countries that have differed, both in their timing and their intensity. And the likely scenario is that the exit strategies also will very carefully reflect the needs of the individual countries -- which one might expect will not be totally in synchrony.

So, both entry and exit will be based on very careful consideration of the need to continue these policies.

I think the key, as Laura has mentioned, is in clear communication -- communication towards markets, but also between monetary authorities -- so that they understand clearly of each other what their intentions are.

Thank you.

MS. STANKOVA: Thank you, Jan. Thank you, Laura. Do we have more questions? Yes. And please introduce yourself and your affiliation.

SPEAKER: What's the worst-case scenario in the global exit?

MS. KODRES: Well, we hope not to see a worst-case scenario, of course.

You know, I think the worst-case scenario will be sort of the opposite of the best-case scenario. It would be, pretty clearly, a situation in which communication is not well used. It would be a case in which there would be large and perhaps not very well coordinated sales of assets. It would be an abrupt increase in interest rates.

I think those are, you know, clearly just the opposite of what it is that we are promoting as a best-case scenario for exiting these types of policies in a consistent and safe and stable way.

I would caution, to note that most of the central banks that we have examined are very conscious of effectiveness, both in terms of the effectiveness of their policies on the macro-economy, but, as well, they are very conscious of the effectiveness of their interventions on the functioning of the various financial markets in which they have intervened.

It's important to point out: Some of that intervention was because those markets were destabilized to begin with, and they provided a helpful, stabilizing role. And, if you want to take a look at exactly how that has looked so far, we have several charts and figures in Chapter 3 that indicate to you various measures of liquidity during those times in which these policies have been put into place. And those could be very helpful, in terms of noting that they haven't really affected markets adversely and, in fact, affected markets in the more positive direction.

MR. OPPERS: Perhaps to add, we have a box in the chapter, Box 3.1, that points to some of the major risks to financial stability of the exit.

MS. STANKOVA: And we will take a question from Media Briefing Center.

”As stated in your report, central bank liquidity is lowering spreads in interbank market in euro area. However, for many banks in Southern Europe, the interbank market is closed.

"How could this liquidity be channeled directly to those banks? If so, under what conditions?"

MS. KODRES: Well, let me just note that one of the reasons that the ECB has intervened in markets is because interbank liquidity was at a lull. And one of the ways in which this can be rectified is by making sure that the underlying banks that form the interbank market in various countries now are safer and sounder, and so other banks will be willing to interact with them in the interbank market.

So, in terms of making sure that liquidity is spread to the appropriate places, the first order of business is to make sure that the individual banks do what they need to do to ensure that they are on a safer plane.

I think it's relevant to look at our Figure 3.2. 3.2 gives a decomposition of the interbank spreads, and attempts to disaggregate that into various risk factors. And the red area in that chart shows you what we attribute to bank risk. And you'll see, in the euro area as a whole, that interbank spreads are still wide, in part because of bank risk. And that's the positive red area in that chart.

So, that can give you a clue as to where we stand in terms of recovery on that topic.

SPEAKER:

So, I have a question -- could you give some suggestions how the emerging market economies can reduce the potential spillover effects from MP-plus you mentioned in the report?

Thanks.

MS. KODRES: Yes, thank you for that question.

I think -- let me just note, first, that the effects of MP-plus on emerging market economies will be covered more in Chapter 1. So -- next week, again, we'll review exactly what might be going on in that context.

As well, there will be a forthcoming paper on unconventional monetary policy, in terms of its effectiveness on the macro-economy. And, as well, it will cover spillovers to emerging markets in that paper, which will probably be released mid-May or so.

So, I'll first note that those two items will give you more of the details.

Let me cover this issue, though, from a more basic level, which is, you know, when spillovers occur, regardless of whether they're caused by MP-plus, or other reasons in the external environment, countries will need to adapt to the inflows that may be larger than they had hoped.

First of all, there are good reasons for capital inflows, so it should be recognize that capital inflows can, indeed, help an economy gather more income than they have locally, in order to make good investments.

The second sort of line of defense, if one thinks that those flows are too large, is to take a close look at the macroeconomic policy, to look at the monetary policy, the fiscal policy, and to ensure that the exchange rate policy is as flexible as possible as an absorber to some of those inflows.

If those policy angles are not able to adjust enough or appropriately, for other reasons, then we would advocate the use of macroprudential tools. And we've done a number of studies now about which macroprudential tools are best used in various circumstances -- and many of them have been used, in fact, by emerging market economies. And they're the economies with the most frequency of use and have the most experience, actually, with some of these tools.

And, if all else fails, if those policies are not effective, or not as effective as they need to be, then, the Fund now recommends the selected and temporary use of capital flow management measures to try to adapt to exactly what the situation might be. They need to be very targeted, and temporary.

So that would be the sort of basic line of attack for those kinds of issues.

Whether capital flow issues arise from these MP-plus policies is, again not always the case, but there's obviously some effects. Particularly the paper coming out in May, will be able to better quantify exactly what can be tied to the advanced economy MP-plus policies.

As an aside, too, I would point to a paper that we wrote in the Global Financial Stability Report in 2010, where we looked at this issue -- several years ago, granted, and maybe in the early stages of these capital flows -- that showed that, in fact, most of the inflows were related to the receiving economies' macroeconomic conditions -- and so economies that had better growth prospects, had more liquid and flexible markets were the ones which collected most of those flows -- and most of the flows were not sort of related to the flows from the push factors that were coming from the advanced economies.

Now, again, that paper is a little dated, because now we've had another several years of relatively loose monetary policy. So the new paper will reevaluate that.

MS. STANKOVA: Yes, please.

SPEAKER: This is a kind of similar question, and answer might be even similar. But there's a concern about currency war as a consequence of accommodating policy. And the yen, Japanese yen, is depreciating a lot since BoJ took aggressive policy.

So how do you concern about this situation? And how much, for example, yen can go further?

MS. KODRES: That question, it was not covered in our chapters. And I would like to defer that question to next week, where you will get a chance to talk to the economic counselor, and the financial counselor, as well.

So, that isn't a question that we really cover in any detail in the work that we've done today.

MS. STANKOVA: If no more immediate questions from the room, I would like to take a question from IMF's Press Briefing Center.

"Could you explain why easing is a medium-term risk to euro banks?

"Could you explain the dynamics of why banks are delaying their balance sheet adjustment?"

MS. KODRES: Well, let me start by noting that our chapter really tries to think about the banking sectors in these three regions from a little bit more of a medium-term standpoint. So, you know, what we examined, really, was how MP-plus policies can affect banks' balance sheets, sort of from a more long-term point of view. And, from that perspective, what we show is that these loose policies have, in fact, benefitted some of these banks.

Now, the empirical work in the chapter is based on U.S. banks, and so it's not directly applicable to euro area banks. But one of the features that we point out that's true across all four regions is that, in general, a slight rise in interest rates, when it come about, will improve their ability to earn money on their loan books but may, in fact, have short-term consequences for their trading books, because they're holding a lot of government debt.

So, in terms of why banks are delaying their balance sheet adjustment, I would take issue with that. They're not "delaying" their adjustment. It will take some time, and some banks have accomplished more in the time period than others.

What the MP-plus policies are doing is providing that breathing room, it's providing that space that banks can fund themselves at relatively low interest rates, and that allows them time to be able to repair their balance sheets. And our plea is that they take that time very seriously, and attempt to repair their balance sheets as expeditiously as possible.

MR. BROCKMEIJER: Yes, I would just mention that we have, of course, looking at past experiences, seen occasions where adjustments in the banking system have been delayed. Japan is an example, in the 1990s and early 2000s.

So, you know, the phenomenon is not unheard of, that these delays can occur. And the message, the strong message, from the chapter is to be alert to these developments and, as Laura has just emphasized, to use the time that is allowed by accommodative monetary policies wisely, to have the changes in bank balance sheets take place as necessary.

Thank you.

MS. STANKOVA: And then I would like to take a follow-up question on the same chapter.

"Could you rank the risks outlined in Chapter 3, based on the threat level they represent to financial stability?"

MR. OPPERS: I'll take that. Thank you.

Yes, from the analytical work that we've done in the chapter, we have been able to get a little bit of a ranking of risks, and think about which risks are most prominent. We put that in a table in the chapter, Table 3.5, for your reference.

We don't see any high-level risks right now. There are some risks that are elevated, but the main message from the chapter is that, for now, risks from the MP-plus policies have been relatively contained. There are some, looking forward, some risks that could show up in the future, and the longer MP-plus policies are maintained, the more those risks would tend to emerge.

One of the main risks that was already mentioned earlier is the risk of a delay in balance sheet repair. And we urge, in the chapter, that those delays should not really be tolerated, banks should repair their balance sheets as soon as possible.

And, perhaps in a follow-up to the previous question, one of the reasons why this is very important is banks should be well prepared for the eventual exit when it comes. And they would be best prepared with healthy balance sheets. That is very important, also, to mitigate the risks that would come with eventual increases in interest rates.

There is some elevated risk -- also going forward, and this also comes back to a previous question -- of central banks exiting from these sort of interbank intermediation of funds that they've been doing, lending longer-term funds to banks because interbank markets weren't doing that properly. Once the eventual exit comes, banks should make sure that they are well prepared to make use of private interbank markets when central banks are no longer engaging in that activity. And so, we should make sure that banks not get dependent on the central bank financing of their balance sheet.

There is a risk, going forward, of some increase in credit risks in banks. That's also something to keep a close eye on. The very low interest rates could -- and we don't see that yet -- but could have the side-effect that underwriting standards might decline. Again, we don't see that yet, but that's certainly a risk to keep in mind.

For the rest, in the table we see some other risks that are of lower magnitude, and I will refer you to that table for those.

MS. STANKOVA: If no immediate questions from the room, one more question from Press Briefing Center.

"You say central banks should use targeted micro- and macroprudential policies to mitigate threats from MP-plus. What might the microprudential policy involve?"

MS. KODRES: Yeah -- it appears we've been talking a lot of macroprudential policies in these debates, and it's useful to go back and think about what microprudential policies are. Microprudential policies are those policies that are directed towards individual banks, not necessarily for the management of systemic or system-wide risks.

The microprudential policy toolkit is very well established, and just needed to be updated -- which it has been, with the advent of Basel III, including the liquidity requirements. And so the basics of the microprudential toolkit include, you know, higher capital ratios. So we've seen that in Basel III. Basel III contains, also, a macroprudential type of capital requirement in the countercyclical capital requirement, and also in the additional capital that would be allocated to the so-called GSIFIs, or the "global systemically important financial institutions."

As well, Basel III includes, now, new liquidity measures, including the LCR, the liquidity coverage ratio, and the net stable funding ratio, the NSFR. Those are both microprudential measures to help banks depend less on short-term wholesale liquidity, and to manage their liquidity measures better.

Another area which needs improvement in the micro area is forward-looking provisioning, that is, taking a close look at the credit risks in your balance sheet and adjusting provisions, in advance, of what you think those risks might be.

Another one is to improve lending standards. And those lending standards have improved in many of the economies that suffered through this last event, because those lending standards had gotten loose.

I would say, importantly, what's necessary -- and we've focused on this again and again at the Fund -- is what we call "attentive and intrusive supervision." And that is by making sure that these microprudential tools are, in fact, enforced, and that supervisors take a very close look at the banks that they oversee, and ensure that they use their tools. In addition to the mechanical tools, if you will, that form Pillar 1 of Basel III, but also use Pillar 2 of Basel III, which is their ability to use discretionary types of interventions in banks to ensure their stability and soundness.

So those are the very basics of the sort of microprudential toolkit. And we advise full use of the microprudential toolkit, as well, as needed, use of the macroprudential toolkit, when necessary.

MS. STANKOVA: Thank you, Laura.

If we don't have any questions -- do we have any questions from the room?

No? If not, with that, we conclude the press conference. Thank you very much for coming today. Thank you for our speakers. The opening remarks are available in the room if you would like them. Have a good day.