Transcript

Transcript of a Press Conference on the Global Financial Stability Report

October 9, 2013

Webcast of the press conference

Ms. Stankova - Good morning, everybody, and good afternoon to those who are joining us today from afar. Welcome to the press conference on the release of the main chapter of the Global Financial Stability Report. Let me introduce the speakers today.

In the center we have Mr. Viñals, Director of the Monetary and Capital Markets Department. Immediately to my right is Peter Dattels, Deputy Director in the Monetary and Capital Markets Department. To Mr. Viñals’s right is Matthew Jones from the Monetary and Capital Markets Department as well; he is a Division Chief there. Then we have Anna Ilyina, Deputy Division Chief in the Monetary and Capital Markets Department.

With that, I will pass the microphone over to Mr. Jose Viñals for his introductory remarks, and then we will take your questions.

Mr. Viñals: Thank you very much, Olga, and good morning to all of you. Welcome back to Washington.

The theme of the report that we are presenting today is that the global financial system faces a series of transitions toward greater financial stability and that these transitions will be challenging because they are surrounded by important risks.

So, what are the transitions that I am referring to? Well, there are a number of them. The first is the transition in the United States from a period of extraordinary monetary accommodation toward the normalization of monetary conditions. The key issue is, will this transition be smooth or will it be bumpy?

Second, emerging markets are facing a transition toward tighter and more volatile external conditions. The issue there is, what needs to be done to keep them resilient?

Third, the euro area is moving toward a stronger union and stronger financial systems, and the report focuses on the close links between the corporate and banking sectors. We asked, what are the implications of the corporate debt overhang for the health of banks?

Fourth, Japan is moving toward the new policy regime known as Abenomics, and the stakes are high. Will Japan’s policies be comprehensive enough to ensure stability and revive sustained growth?

Finally, there is the global transition toward a safer financial system, toward better regulation, where much remains to be done. So, let me now turn to each of these transition challenges in more detail.

Starting with the United States, the question I posed is whether the transition to monetary normalization would be smooth or bumpy, and this is something which is key not just for the United States but also for the rest of the world. The first thing to be said is that this process will be unprecedented and complex, and that long-term interest rates could overshoot even for extended periods of time. In fact, containing long-term interest rates and market volatility has already proven to be quite a substantial challenge, as shown by the sharp rise in bond yields and volatility since the tapering talks started at the end of May. Going forward, lower market liquidity and overextended allocations to bonds could amplify these risks.

Moreover, higher interest rates may reveal some weak links in the U.S. shadow banking system, which exacerbates these market and liquidity strains. One example is the so-called Mortgage Real Estate Investment Trusts (mREITs) which share a number of characteristics with Structured Investment Vehicles (SIVs) and the conduits that were so popular before the subprime crisis.

The characteristics that they share is that they are highly leveraged vehicles prone to funding runs and that they could be forced to sell rather quickly their asset holdings, causing disruptions in mortgage-backed securities markets, which could spread to broader asset markets.

So, the question is, what needs to be done in order to ensure a smooth transition toward monetary normalization in the United States? There are two things that need to be done. On the one hand is a clear and well-timed communication by the Federal Reserve to minimize interest rate volatility as well as an effective execution of the exit strategy in line with economic developments. On the other hand, there is a need for increased prudential oversight, both micro- and macroprudential, and more transparency in the shadow banking system. This is something which is essential to preserve financial stability and to allow the Fed to keep its focus on ensuring a smooth exit based on economic developments and without having to worry about financial stability risks.

Let me turn now to emerging markets. There, the question is, what happens if the tide of capital flows recedes from emerging markets? Since the Lehman crisis, bond inflows into emerging markets have risen by more than $1 trillion, and this is well above its long-term trend by almost half a trillion dollars, boosting emerging market corporate borrowing to record levels.

Events since May also point to new financial stability concerns. Foreign investors now play an important role, a bigger role than in the past in local debt markets, but market liquidity has deteriorated in recent years, making local interest rates more sensitive to changes in investor sentiment. At the same time, corporate balance sheets have weakened; financial vulnerabilities are rising; and economic growth is slowing. All this exposes these countries to more severe market stress.

So, what needs to be done? If economies are faced with significant capital outflows, in our view, steps need to be taken to ensure orderly market conditions and facilitate smooth portfolio adjustments. This means letting the exchange rate move in line with fundamentals, but having some intervention in order to maintain orderly conditions in foreign exchange markets, and also avoiding any dysfunctionality in domestic capital markets by providing adequate liquidity. But keeping emerging market resilience also requires countries to address domestic vulnerabilities and enhance policy credibility.

Let me move now into the euro area. There, important progress has been made on many fronts, but key challenges remain. Policy actions at the regional and at the national levels have reduced funding pressures on weak sovereigns and on weak banks, but credit is still hampered by financial fragmentation.

The report also shows that a significant share of corporate debt in stressed economies is now owed by companies with weak debt servicing capacity; this is what we call a debt overhang. We estimate that even if financial fragmentation were to be reversed between the core and the stressed economies, a persistent debt overhang would remain amounting to almost one fifth, 20 percent, of the combined corporate debt of Italy, Portugal, and Spain. This debt overhang can also affect the banking system through losses on corporate loans. Therefore, some banks will need to increase provisioning against these expected losses and this could absorb a large portion of future bank profits and in some cases could even eat into capital.

So, what needs to be done? Well, there are a number of policy actions that need to be put in place to address the legacy of weak corporates and remaining weak banks in the euro area. The corporate debt overhang needs to be addressed in a more comprehensive manner and this may involve debt cleanups, improvements to bankruptcy frameworks, or special asset management companies to restructure loans.

In addition, the planned bank balance sheet assessment and stress tests by the European authorities are a golden opportunity to conduct a thorough and transparent review of bank asset quality and to identify capital shortfalls, but credible backstops need to be put in place before the exercise is concluded in order to offset any identified shortfalls if private funds are insufficient. Last, but certainly not least, a bolstering of bank balance sheets needs to go hand in hand with adequate progress toward the next steps of banking union, in particular accompanying the Single Supervisory Mechanism by a strong Single Resolution Mechanism.

Let me now turn briefly to Japan. Differently from the United States, Japan is scaling up its monetary stimulus under the so-called Abenomics Framework. The key message that we have is that policymakers in Japan need to ensure that this policy package is implemented completely. A failure to implement the planned fiscal and structural reforms—relying on the monetary arrow without firing the other two arrows—could re-ignite inflation and intensify stability risks, given the very strong linkages between sovereign risk and banks in Japan.

In addition to these national and regional transitions that I have outlined, I would like to refer to another transition at the global level of moving toward a safer global financial system, and this has to do with regulation. There, while progress has been made and is being made, we still need to complete the regulatory reform agenda, consistently implement the new rules across countries, like Basel III, and enhance banking and financial supervision in general. We are not there yet. Much work remains to be done to achieve a safer global financial system.

So, let me conclude. If the policy challenges that I have examined are properly managed, the transition toward greater financial stability should be successful and should provide a more robust platform for economic growth. We are on the road; we have the map. Now policymakers need to steer carefully to navigate the bumps on the road so that we can all safely arrive at our destination.

Let me stop here, my colleagues and I will be happy to answer any questions that you may have.

Ms. Stankova: Thank you, José. We will now take your questions. Please identify yourselves and your affiliation when asking a question.

QUESTIONER: My question is that a Chinese think tank this morning has released various studies saying that China’s shadow banking activity now takes about 40 percent of China’s GDP growth and that number a few years ago was actually nothing. So, do you think this very fast-growing shadow banking activity is something that is a stimulus to the global economy or Chinese economy or is it something that will pose a great threat to financial stability?

Mr. Viñals: It is true that in China the shadow banking system has been growing quite significantly in the last few years and that now about half of the credit is being generated through the shadow banking system. This is a little bit like cholesterol; there is good and bad. The good part of it is that this is reflecting the financial development in China and that, in addition to bank sources of credit, now there are nonbank sources of credit. This is something which is welcome inso far, as it implies that markets are becoming more important.

But at the same time, one needs to realize that shadow banking is less regulated or not regulated at all compared to the banking sector and, therefore, there is the potential for excesses to appear. So, it is very important that the Chinese authorities continue enhancing the monitoring of shadow banking activities in order to detect potential pockets of systemic risk and to regulate those segments of the shadow banking system that they think should be regulated in order to lower the systemic risk to tolerable levels.

QUESTIONER: Two things on the U.S. There was this overnight spike in the short end of the bond curve for U.S. bonds. Since you put this publication to bed and said that we assume the debt ceiling will be solved and the shutdown will be short, are you getting any more worried that these things could sort of erupt in the short term rather than only when the taper starts to occur sometime down the road?

Secondly, I am just wondering about your engagement with U.S. officials this week. I mean, are they missing in action here at the meetings? Are you talking directly with them. I know there is always an issue at the Fund regarding leverage over the larger shareholders, but what are you saying to them? Are you talking to them directly or are they even answering their phones.

Mr. Viñals: Well, the Fund is in close contact and communication with the U.S. authorities. Let me tell you that they are not missing in action. The exchanges and communication are as fluid as always. You should not be concerned about that.

On the issue that you mention of the spike in very short-term interest rates, this is something that we have been seeing already for a couple of weeks. Since the shutdown started, we have seen that the very short-term market interest rates have gone up. There has been some inversion of the yield curve in the very short-term segment. All this is reflecting are the concerns that markets have that, as days pass, the situation is not resolved. So, I think that this has to do more with the inter-linkage of the shutdown with the debt ceiling, and so on.

Our hope is that this is something that should be resolved, both the shutdown and debt ceiling. Although this is our hope, I want to be very clear that what is happening is not good news. It shows some difficulties in the U.S. political establishment and political machinery to produce good outcomes.

I think that the shutdown is a bad outcome. So far, it is just limited in time; it has limited effects. As time goes by, the impact would be larger. If this were to be accompanied by a lack of agreement on the debt ceiling and the debt ceiling is not lifted, this is going to imply an even stronger fiscal adjustment which may actually even derail the U.S. recovery.

There is the tail risk, if you want, of a potential default that we think has a very low probability, but this would be something that could have very serious consequences through financial markets both for the United States and for the rest of the world. So, it is completely of the essence that the U.S. political machinery gets its act together and ends this impasse, which is very detrimental to confidence and which already is beginning to show up in very limited amount, but, nevertheless, a sort of concerning amount in financial markets.

QUESTIONER: Let me take a question from online and encourage those who are watching online to ask questions.

The Fund previously assumed that the Fed would start tapering its bond-buying starting early next year. Has the Fund changed that assumption as to what constitutes an appropriate exit, given current economic conditions?

Mr. Dattels - In terms of our baseline forecast in the WEO underlying the economic projection, we see short-term rates only moving up in early 2016. Market expectations are anchoring around June 2015. So, we could say that the market is a little bit in advance of what we have in our baseline forecast.

In terms of managing the tapering aspect, the way we look at this in the GFSR is through the effect on longer-term interest rates in the context of our measurement of the term premium. Long-term bond yields constitute a combination of short-term expectations on interest rates, the policy rate, but also premiums built up in longer-term yields. Analysis in the report highlights that the quantitative easing program has been a significant factor in depressing ten-year bond yields.

So, naturally what we have in the report is that we want a gradual normalization of these longer-term premiums, and this is where we underline the point that tapering should be managed in a way that builds in a gradual normalization of those long-term premiums. I think that is the point.

It is difficult to manage. If we look at the history, the term premium has fluctuated anywhere from plus 300 basis points to minus 100. It has moved up considerably since the May 22nd statement, and it is hovering somewhere around a little bit below zero. So, it has already adjusted to some extent and that is good news, but certainly there is potential for term premium rates to increase further. That is what we see as the transition risk that we referred to into the report.

QUESTIONER: You pointed to the problems in the euro area banking system and the importance of the Asset Quality Review and the stress tests, and also the need for backstops to be ready by the time that the quality revenue and the stress tests are completed. Do you think national backstops will be enough or is there a need for a European backstop, which many people seem to resist in Europe?

My other question is about Italian banks. You recently published the FSAP on Italy which seemed to give an overall assessment of solidity or ability to withstand the crisis to Italian banks. In this report you point out a number of vulnerabilities. Which is it, sound or vulnerable, and which are the vulnerabilities that you see, in particular, in Italian banks at this stage?

Mr. Viñals: Okay. Let me go into the two questions that you have posed. The first one, on the backstops, I think it is very important that the balance sheet assessments, including the stress tests, that are going to be conducted by the European authorities are tough and deep, because that is the only way to provide transparency and further bolster confidence in European banks on the part of markets. This exercise will need to also identify what are the bank-specific capital shortfalls which need to be filled.

So, the size of these capital shortfalls and the necessary size of the backstops will only be known when the exercise is completed, so I would not like to prejudge now whether the backstops are going to be enough or not. Once the exercise is completed, one will have to decide how are these capital gaps filled, and the first line of defense is the private sector. In a number of cases, this may well be enough. In other cases, not.

In those cases where this is not enough, one would have to go to the national backstops if there is room for maneuver fiscally, and that would be the solution. In other cases where there is no fiscal room for maneuver, then you always have the ESM, the European Stability Mechanism, which is the common European backstop, which will be able to lend to the country to solve these issues or provide direct recapitalization under the conditions that have been established.

So, this is the sequence of steps that one needs to follow. We are confident that the European authorities will do whatever is necessary to ensure that the adequate backstops are there both at the national and at the European level, the euro area level, so that the exercise can be a successful one.

On Italian banks, in the FSAP we said that the Italian banking system was stable and that it had the capacity to withstand the series of adverse shocks because the buffers that the Italian banking system has are significant. But we also said there, as we say in the Global Financial Stability Report, that one of the main vulnerabilities in the Italian banking system going forward has to do with the weak economy, which may lead to high nonperforming loans, and that within this nonperforming loans category the corporate sector is particularly important.

So, this is what we said in the Italian Financial Sector Assessment Program and what we say in the Global Financial Stability Report. Fortunately, the Italian authorities and the Bank of Italy in particular, have already engaged in a process of looking at loan classifications and enhancing provisions of Italian banks, which is going to be very important to help absorb the potential losses that may come from these bad loans in the future. But both in our assessment of the Italian financial system in the FSAP and in the GFSR, what we say is keep up the guard, keep working to further strengthen the resilience of the Italian banking system.

QUESTIONER: We have seen how the Spanish banks are going to be ready to confront the debt overhang from the corporate sector. We recently have seen the Spanish government reject the extension of the help from Europe to Spanish banks in the future. Is this a correct decision just in case something happens?

Mr. Viñals: Well, I am not sure that there has been an official formal decision. Our position on this issue of whether to extend or not the Memorandum of Understanding that was signed between Spain and the European authorities. That this is a decision which rests solely in the hands of the Spanish government, which will have to arrive at this decision and converse with the European authorities.

But one thing that is clear is that the situation now is very different from what it was when the Memorandum of Understanding was signed a year and a half ago in the sense that the sort of tremendous lack of confidence that was there at the time is no longer there. In fact, as you know, the last assessment that we have issued on the Spanish financial sector reforms just a couple of weeks ago says that the financial sector reform is on track, and all of the progress reports that we have issued are saying the same thing, that this is on track.

So, I think good progress has been made, but at the end of the day it would be a decision that would need to be taken formally by the Spanish authorities whether to do one thing or another.

QUESTIONER: Okay. Let me take a question from online, moving to another part of the world, Latin America. Among emerging markets, what countries would be the most vulnerable to a change in the tide of capital flows? What are the Brazilian vulnerabilities and how ready is Brazil to face this challenge?

Let me take another question online also from Brazil but on a different subject. I would like to ask Mr. Viñals how does he evaluate Janet Yellen as the Fed President.

Mr. Jones: On Brazil, in the report the key messages for emerging market countries are that they are facing this transition to more volatile external conditions following this period of sustained capital inflows and strong domestic credit growth. A number of countries have experienced considerable market stress as some of those capital outflows have reversed in recent months.

The analysis we have in the report shows how bond markets are now more sensitive to these global factors because of the expanded role of foreign investors, and that is certainly the case for Brazil, which has seen an increase in the share of foreign investors.

At the same time, Brazil has benefited from those inflows that have facilitated issuance at much lower rates and also has facilitated an increase in the duration of the debt, which reduces the rollover risks. At the same time, domestic fundamentals have weakened after a fairly sustained period of credit expansion and rising corporate leverage. So, corporate vulnerabilities are on the rise in the region.

I think if you look at what has happened in Brazil so far, you have seen that their exchange rate has adjusted flexibly to meet some of those outflows. They have also taken a number of policy measures, as Mr. Blanchard suggested first and foremost, to get your domestic house in order.

The policy actions that the Brazilian authorities have taken to, first of all, increase interest rates to ensure the credibility of their monetary policy framework and also the actions they have taken to enhance liquidity in the foreign exchange market and provide more certainty there have helped to address some of those concerns that investors have had.

So, we think Brazil is ready to face the challenges. We think their policy response has been appropriate. We think if they continue with their policy framework strengthening, rebuilding buffers, then they will be able to withstand any challenges that markets present.

Mr. Viñals: On Janet Yellen, let me just say the following. I would not like to prejudge the announcement that the White House is going to make this afternoon. I think it is good news that the U.S. Administration is moving toward dissipating the uncertainty that still exists about who is going to be the next Chairman of the Federal Reserve.

But on a personal note, let me add the following. If the announcement this afternoon is that Janet Yellen is nominated to the position of the Chairman of the Federal Reserve, let me tell you that I would be very happy. This is because over the years I have interacted with Janet Yellen; I have been present with her in a number of meetings, including most recently.

I have the highest regard for her both as a very solid, excellent thinker, given her very substantial academic experience and background, and also as a very, very solid policymaker with a tremendous sense of policy, tremendous good sense, and great seasoning at the Fed. So, both on her academic credentials and on her policy experience, I cannot think of anybody who is better prepared than Janet Yellen to lead the Fed in these challenging times.

QUESTIONER: What is your assessment of the potential impact of the QE tapering and its spillovers on emerging markets? On China, the IMF has suggested China to rein in capital expansion, but also warned that a sudden credit squeeze could also further decelerate economic activity and trigger serious asset quality problems. How can China smooth the cooling process?

Mr. Viñals: Let me go into the two questions and start answering the last one first on China. I think that, as everything in life, you have to be measured. That means that China needs to rein in the rapid growth of credit. Otherwise, over time, this is going to lead to higher nonperforming loans, and this would be a challenge.

But you want to do this in a way that it does not lead to an abrupt closing of a source of credit to the economy, because that would create very important problems of a sharp slowdown, which would, as you said, will have very negative implications for bank asset quality.

So, again, you have to do something which is measured. I think the way the Chinese authorities are acting now to move into this direction is a gradual and measured way. So, I think that this is something that can be successful.

Regarding the QE tapering, as Pete Dattels was mentioning before, this is a challenging process. It is a challenging process because we do not have that much experience with understanding how changes in the rate at which you do asset purchases or when you do asset sales later on, to what extent is this going to affect long-term interest rates.

So, sticking to the tapering, which has to do with the reduced rate of asset purchases, the potential impact on emerging markets is it is going to depend very much on how solid are the domestic fundamentals both in terms of the macroeconomics, in terms of the financial sector of these emerging markets.

What Matthew was saying for Brazil can be applied to many economies. If you have solid macro-financial fundamentals at home, if you let the exchange rate move in the direction of where markets are pushing you, and if you have policies in order to maintain orderly market conditions both in terms of foreign exchange markets and in terms of local financial markets, then the adjustment is going to be smooth.

But, you need a set of policies. Some countries are more advanced than others in having the right policies in place. What I would say is that it is very important, for those who can still prepare, to prepare in case there are further turbulences in financial markets. This is something that cannot be excluded, because, as I said, managing the process is unprecedented and it is quite complex as well.

QUESTIONER: Two questions. The first one is, in Britain there is a lot of concern about the extension of assistance to people who want to buy homes, the so-called Help To Buy scheme, and the interest rate subsidies and deposit subsidies which the government is doing, and it may blow up a new housing bubble. I wonder if the IMF had any views on that particular issue, which has obviously surfaced very heavily in the U.K.

Secondly, do you have a global figure for the amount of corporate debt damage on Europe’s periphery, which you referred to earlier on?

Mr. Viñals: I will ask Anna Ilyina to answer the second question on the specific global figure, but let me tackle your first one on the initiatives by the U.K. authorities called Help To Buy.

This is a new initiative so I think that it is too early to judge what the impact of this initiative is going to be. It is true that this initiative, which has as its main goal of enhancing access to owner-occupied housing and also to stimulate construction of new homes, this initiative is taking place at a time when the housing market in the U.K. is already recovering quite well.

So, the goals of this initiative, particularly improving access to owner-occupied housing, I think are good initiatives from a social viewpoint. But the question is that if this scheme only increases the demand for housing but there is no sufficient response on the supply for new housing, this may lead to even higher housing prices, which may actually reduce the affordability of housing to the population.

So, I think that this is something that needs to be looked at, because enhancing the supply of housing in order to cool down housing prices in United Kingdom may require measures beyond the program that we are discussing in the Help To Buy. It may require measures to alleviate planning constraints, or tax incentives in order to further new house construction. So, I think all of these are important issues that need to be taken into account. Also, one needs to be vigilant on what the scheme may do to the positions of households in terms of debt and also of the banks which are issuing the loans which would be used to buy the new housing.

So, overall it is a new scheme. I think it is a scheme with good goals. But one needs to be careful that, if there is no supply response, this may exacerbate the increase in housing prices in the U.K.

Ms. Ilyina: Regarding the second question on the implications of corporate stresses on banks in stressed euro area economies, we present a number of estimates in the report based on the range of loss-given-default assumptions, looking at the 2-year horizon and assuming no further improvement in economic and financial conditions (which is worse than the WEO baseline). Based on this exercise, under the standard 45 percent loss-given-default assumption, the Spanish banking system could face an estimated 104 billion euros of gross losses on corporate exposures, but this would be fully covered by existing provisions. This is because following several asset quality reviews and stress tests, Spanish banks have significantly increased provisions, especially on construction and real estate exposures.

In the case of Italy, the estimated gross losses on corporate exposures could amount to 125 billion euros and that would exceed the existing provisions by about 53 billion euros. However, this can be covered by operating profits without eroding existing capital buffers. In the case of Portugal, the situation is similar. The estimated gross losses on corporate exposures could amount to about 20 billion euros, with 8 billion euros in excess of existing provisions that could be covered by operating profits.

So, the bottom line here is that, although banks have done quite a lot and bank regulators have done quite a lot to assess corporate sector risks and implications of these risks for banks, and boost provisions and capital, some banks in stressed economies might still need to further increase provisioning to address further potential asset quality deterioration on their corporate exposures.

Mr. Viñals: Let me add one thing to this, which is that the exercise that we are doing is an aggregate exercise, but in order to know which banks need to do what, this is why you need the balance sheet assessment by the European central banks. That is the only method for identifying specific bank capital gaps that need to be filled.

Our exercise is an illustrative one which says we think that there is an issue that needs to be looked at, but it is the European Central Bank, through the Asset Quality Review and stress tests, that will have to look at these issues but also at other issues in other countries. On that, we are recommending something to specific banks which may be found to have insufficient coverage for the losses that may be coming.

QUESTIONER: Looking at the impact of the U.S. government shutdown on the [?] in the international financial markets, could you tell me or give me a projection of the impact of that uncertainly now on African stock markets, where indices have grown sharply this year, and ...[UNINTELLIGIBLE]...a lot foreign inflows, especially from mutual and [?] funds. So, do you have an idea of the impact of these assets in financial markets on the performance of those markets in the next two or three months?

Mr. Viñals - I am not sure that I fully understood the question, but let me try and then see whether what I understood is what you meant. Again, there are three things. One is the shutdown; the other is the debt ceiling not lifted; and the third is a potential default linked to nonlifting of the debt ceiling.

In the first case, with the shutdown or a debt ceiling which is not lifted for some time but then finally is lifted, the impact is going to be mainly on the economy. If there were to be some default on the payment of debt interest of the United States, this is something that would have very significant repercussions in financial markets throughout the world, not just in the United States but also in other economies. If that happens—and let me emphasize again that this is a tail risk; this is a very small probability event—this is something which would be a serious disruption to the economic recovery that we are seeing, and this will have a very negative impact on the economies of every country I can think.

So, let us hope that we never get there, that even this tail risk, which is a tail risk will never be materializing because that would have very adverse consequences, it would adversely affect advanced economies, emerging markets, low-income countries. It will be a worldwide shock. So, let me emphasize that it is tail risk, but let us make sure that it never happens.

QUESTIONER: I want to know your opinion about the Mexican financial system in the face of the tapering.

Mr. Viñals: Well, the Mexican financial system is very well-supervised, capitalized. The Mexican authorities have over the years taken very, very important measures to ensure the solidity of the Mexican banking system. But it is also true that Mexico, which is so close to the United States, may be particularly affected by the tapering in U.S. monetary conditions. This is something that needs to be on the radar screen, as I am sure it is and I know it is, of the Mexican authorities, and also because the Mexican markets are very liquid, and then they can be used as a proxy for liquidity if things become turbulent again.

So, that is something which just reinforces the need to be vigilant and to be ready to cope with any potential market issue if it arises. I know this is very much on the minds of the Mexican authorities and that they are fully preparing just in case.

At the same time, one needs to understand that because any tapering will only happen, as the Fed has mentioned, when economic conditions and economic recovery are on sufficiently strong grounds, this is something which is good news in terms of growth for the United States, but it is also good news for Mexico, because Mexico is very much connected economically to the United States. This is something that if the United States grows more, that is going to be beneficial for Mexico and this is going to lead to an improvement in economic growth in Mexico, and an improvement in the quality of bank balance sheets. Again, this is a positive.

So, I see positives. I see some risks, but, as I said, the Mexican authorities have a track record of very solid vigilance over the financial system and the banking system, in particular, and I am very hopeful that this is going to yield very good returns this time as well.

Ms. Stankova: With that, we will conclude the press conference. Thank you for coming. There will be other opportunities this week to raise questions, including on country matters. Have a good day. Goodbye.