Transcript

Transcript of October 2020 Global Financial Stability Report Press Conference

October 13, 2020

Speakers:
Tobias Adrian, Financial Counselor and Director, Monetary and Capital Markets Department, IMF
Fabio Natalucci, Deputy Director, Monetary and Capital Markets Department
Randa Elnagar, Senior Communications Officer

Ms. ELNAGAR: Good morning, everyone. Welcome to the Global Financial Stability Report press briefing. I am Randa Elnagar of the IMF's Communications Department. We have with us here today Tobias Adrian, Financial Counselor and Director of the Monetary and Capital Markets Department, and Fabio Natalucci, Deputy Director of the Monetary and Capital Markets Department.

Mr. ADRIAN: Good morning, ladies and gentlemen. Today we are pleased to present the latest edition of the IMF's “Global Financial Stability Report.” Along with Chapter One, which we are releasing today, I'm sure you'll be interested in the additional four thematic chapters of the GFSR, which will be released next week.

The COVID‑19 pandemic has triggered a severe global economic crisis. Policymakers have taken bold, unprecedented action to protect public health, contain the immediate economic damage, and safeguard the financial system. For the moment, near‑term financial stability risks have been restrained, thanks to extraordinary monetary policy easing and massive fiscal support.

That dramatic action has stabilized global financial markets, boosted investor sentiment, and maintained the flow of credit. Critically, decisive policy support has helped prevent the destructive macro‑financial feedback loops that were so prevalent, and so pernicious, in the financial crisis more than a decade ago.

However: Some pre‑existing financial vulnerabilities are now intensifying, representing potential headwinds to the recovery.

Risks to growth are still tilted to the downside. The probability that global growth will fall below zero in 2021 is close to 5 percent. This “tail risk” suggests that the economic future remains precarious, amid huge uncertainties.

Moreover, there is a risk that the recent policy actions may have unintended consequences beyond policymakers' stated objectives. If persistent, for example, there is a persistent gap in financial markets, where rising stock market valuations, despite the recent repricing and the weak performance of the real economy are disconnected. This gap is going to hopefully narrow gradually as the economy regains steam. But if the recovery is delayed‑‑for example, if it takes longer than expected to get the virus under control, then investor optimism may wane.

Policymakers face a trade‑off in their decision making, between the support that is needed today and the implications of rising vulnerabilities for growth in the medium term. Policy measures have allowed firms to cope with cash shortages that they experienced during economic shutdowns by taking on more debt. This additional borrowing has helped avoid a wave of bankruptcies at the early stages of the crisis, but it has also led to a further increase in corporate debt burdens.

Many firms already had very high levels of debt before the crisis and now indebtedness in some sectors is reaching new highs. This means that solvency risks may have shifted into the future. Renewed liquidity pressures could easily morph into insolvencies, especially if recovery is delayed.

In addition, the resilience of the banking sector is likely to be tested. The banking sector entered the COVID‑19 crisis with stronger capital and liquidity buffers than at the beginning of the global financial crisis. The success of the reforms undertaken over the past decade has allowed them so far to be part of the solution, rather than part of the problem.

Banks continue to provide credit to businesses and households during the pandemic. Nonetheless, in an adverse macroeconomic scenario, our analysis shows that some banking systems may suffer significant capital shortfalls. A large number of firms and households will not be able to repay their loans, even after accounting for the currently deployed policy measures and their profitability will falter.

There are also concerns about the nonfinancial‑‑non‑bank financial sector institutions which now play a growing role in credit markets in advanced economies, including its riskier segments. They have managed to cope with the pandemic‑induced market turmoil thanks to policy support, yet there are evident fragilities in this sector.

The increased links between corporates, banks, and non‑bank financial institutions imply that at some point, fragilities could spread through the entire financial system.

Conditions in emerging and frontier markets also require policymakers' attention. Some emerging markets and low‑income countries face financing challenges. The easing of global financial conditions has generally improved the outlook for portfolio flows to most emerging markets. However, some low‑income countries have still not regained access to capital markets. Some of them are so heavily indebted that they may face distress as they confront borrowing costs at prohibitive levels.

Looking ahead, policymakers should carefully sequence their response to build a bridge to a sustainable recovery. As economies reopen, monetary policy should remain accommodative to sustain the recovery. Liquidity support should be maintained even if the pricing should be gradually adjusted to encourage the return to market funding. A robust framework for debt restructuring will be critical to reduce debt overhangs to resolve nonviable firms.

An extension of multilateral support to low‑income countries that face financing difficulties will be important.

The immediate policy agenda should be mindful of one overarching objective, the transformation of today's carbon‑intensive economic model and the transition to a greener, cleaner, and more stable economy.

After the pandemic is under control, a robust financial sector reform agenda should focus on rebuilding bank capital buffers, strengthening the regulatory framework for non‑bank financial institutions, and stepping up prudential supervision to contain excessive risk taking in a lower‑for‑longer interest rate environment.

Thank you very much. Now we would welcome any questions you may have.

Ms. ELNAGAR: Thank you so much, Tobias. We have a few questions coming in online and through WebEx. We are going to start with‑‑

QUESTIONER: The shape of the global banking sector is not so bad; but in the euro area, private banks have had huge nonperforming debt since the European debt crisis in 2010 and European private banks have a lot of credits in South America that has a risk of debt crisis. So how do you assess the European banking sector?

Mr. ADRIAN: Thanks for this question. We are publishing in this Global Financial Stability Report a global bank stress test. And, indeed, the global banking system entered this crisis with much higher capital and liquidity levels than was the case at the eve of the global financial crisis in 2008. So in our assessment, overall, globally, the banking system is safe and can absorb future losses, even if the pandemic were to last longer than expected and if downside risks were to realize.

However, there is a weak tail of banks in some regions and in some segments of the banking sector. In particular, there are some charts in the GFSR that, indeed, show that banking systems in Europe are somewhat more vulnerable than the global banking system on average and banking systems in emerging markets are also somewhat more vulnerable.

Some of these vulnerabilities in those banking systems are related to the position with which the banks entered into this terrible pandemic. So these pre‑existing weaknesses are carried over. For example, some banking systems had high NPL ratios to start with.

Furthermore, some countries are hit harder than other countries and, of course, the banking sector performance reflects the economic developments in those countries. Furthermore, in some countries, particularly in the euro area, interest rates are expected to remain very low for a very long time, and the yield curve is very flat for a very long time. And that tends to lead to a compression of net interest rate margins of the banking sector.

As we are moving into the recovery phase and hopefully economic activity will resume around the world, including in Europe, we do expect that banks are going to rebuild buffers. But, of course, a profitable banking sector is needed to rebuild those capital buffers because capital is retained earnings on bank balance sheets.

So profitability challenges certainly present a headwind, so the recovery of bank capital buffers, which should be used in this crisis; right? I mean, bank capital buffers are there to be used in times of crisis, but then the rebuilding will take more time, where profitability is low.

Mr. NATALUCCI: Maybe one thing to add is, like Tobias mentioned, the nonperforming loans in the European banking sector. That has been one of the structural issues that the European banks have to deal with, together with the low interest rate environment and profitability challenges. So it is important‑‑a lot of steps have been taken to address NPLs in Europe. Those were important steps taken going into the pandemic, so a reduction in NPLs across a number of countries. Going forward, it is important that banks continue to have a comprehensive strategy to address NPLs, strengthening the resolution regime in Europe, and also continue to have secondary markets liquid, where these NPLs can be disposed at market prices.

Ms. ELNAGAR: Thank you very much. We take now another question For the U.S., what sort of prudential regulation do you have in mind to contain risk taking?

Mr. ADRIAN: Yes. So thanks for that question. It is, of course, a very important question. The sell‑off that was triggered by this pandemic in March, it started in February and then accelerated in March and then slowed down in April and May as central banks intervened. That sell‑off uncovered a number of vulnerabilities in the non‑bank market‑based financial sector. In particular, money markets dried up to some degree and money market funds, some of them became vulnerable. So that will certainly be one area of focus.

Secondly, we saw a dry‑up of liquidity in Treasury markets in the U.S., but also in benchmark sovereign markets in other countries around the world. So these are the safest assets and the most liquid assets. So a dry‑up of liquidity is certainly a concern to be looked into going forward.

Furthermore, margins increased very rapidly in some market segments, which is another area of concern.

Finally, in asset managers, liquidity mismatches and risk transformation continues to present a vulnerability. So these are all focus areas in the non‑bank financial sector.

In the banking financial sector, of course, as I mentioned earlier, the banks entered the crisis with high levels of capital and liquidity, and we expect some of those buffers to be drawn down. And it will take some time to rebuild those buffers once the economy is recovering.

To answer your question, you basically have to look at different segments of the market system, and prudential regulation in both the banks and the non‑banks will continue to play a major role going forward.

Mr. NATALUCCI: Maybe if I could add, the focus of concern for non‑bank financial institutions, one has been the liquidity mismatch. One vulnerability that has come to the fore during the stress in March. Obviously with the help of policy support, the vulnerabilities, asset management industry has been able to address those, but there are other vulnerabilities we have highlighted in previous financial stability reports.

One of them is some of these non‑bank financial institutions play a larger role in credit markets, particularly riskier segments in‑‑we will need to monitor how we will handle the recovery.

Other possible vulnerabilities, one we have seen threat asset correlation. That means if there is a shock, the shock would propagate across the non‑bank financial institution at a faster speed and become potentially an amplifier. Another is incentives going forward in the very low interest rate, very low volatility environment with returns starting to compress, there will be a risk incentive to use financial leverage to boost returns. That is something worth monitoring going forward.

Finally, interconnectedness, as Tobias mentioned, banking sector, nonfinancial institutions and corporates and the extent to which there is an additional stress in resurgence, how that amplifies the shock.

Ms. ELNAGAR: Thank you very much. We will go now to our WebEx followers and viewers. Please ask your question.

QUESTION: Possible vulnerabilities are one, we have seen‑‑asset correlation. That means if there is a shock.

Ms. ELNAGAR: Could you hold on for a second? Can you hear?

We are going to restart again. Could you start the question again, sir?

Mr. ADRIAN: Thanks very much for the question. The question was about the upcoming election in the United States. Of course, we do not comment on political developments, and we do not have a view on what is going to happen. But I would note that, looking at implied volatility, there is certainly some increase of uncertainty around the election. And that is reflected in financial markets. So the pricing in general of policy uncertainty is reflected in markets and that is also true in this particular instance.

Ms. ELNAGAR: Now we go to the second question.

QUESTIONER: Yes. Can you hear me?

Ms. ELNAGAR: Yes, we can hear you.

QUESTIONER: OK. So thank you for taking my question. This is Simon from today news Africa in Washington, DC. The IMF has already provided almost 31 billion dollars to almost 76 countries around the world, to respond to COVID‑19 economic crisis. And almost half of that money, 15, 12 to 15 billion dollars have gone to African countries.

So my question is, are you, one, worried about debt distress, debt repayments in sub‑Saharan Africa? And also, are you satisfied with the way the money that was loaned to African countries was used? It seems like some countries in sub‑Saharan Africa‑‑Nigeria, Ethiopia‑‑that the money did not really go to small businesses or directly to the pockets of the people living in those countries. Thank you.

Mr. ADRIAN: Thank you very much for your question.

Since the start of the pandemic, the IMF has provided financing to 81 countries at this point. So the number is even a little bit higher than what you mentioned. And the total new financing is about 100 billion‑‑actually, a little bit more than 100 billion. Poverty Reduction and Growth Trust (PRGT) countries‑‑much of which are in sub‑Saharan Africa‑‑received about 21 billion. So this is concessional. So as you are pointing out, it is, indeed, extremely important for this money to get to the right people.

We are watching very carefully, and we are working very closely with our membership, so with countries in Africa but also countries around the world to make sure that all these loans go into the right hands.

You know, the program design, how money is distributed, how help is provided is extremely important. We continue to work with many countries in Africa but also around the world to really help to improve the situation going forward.

I would note the G‑20 has the Debt Service Suspension Initiative (DSSI), which has helped many countries as well in terms of coping with this terrible crisis.

Ms. ELNAGAR: Thank you, Tobias. Fabio?

Mr. NATALUCCI: Maybe I could add a couple of points in terms of access to markets.

With the global financial condition easing since March and the rebound in risk appetite, markets have reopened progressively, starting with investment-grade countries and then high yield, for example. So the countries [that are] higher-rated, they actually had access to markets, they could issue to domestic, international markets, in our hard currency, in local currency.

When you start going into the more challenged countries‑‑frontier countries, for example‑‑the reopening of markets has been slower. We have seen coming back issuance in frontier markets in September, for example. So far, the total for the year is about 25 billion. One part that has remained close in terms of market access has been sub‑Saharan countries. Since February, the last issue with Ghana, we have not seen any issue in sub‑Saharan countries in international capital markets, and that could be an issue, in some sense, of possible distress going forward. It would be great if sub‑Saharan countries, in fact, could benefit from the increase in global risk appetite at this point.

Ms. ELNAGAR: Thank you. So we have another WebEx question and then we will go to our online media center.

QUESTIONER: Good morning to all. Can you hear me?

Mr. ADRIAN: Yes, we can hear you.

QUESTIONER: Good morning to all of you. I hope you are doing well and safe.

My question is, in light of that number of central banks around the globe have adopted a stimulus procedure packages to contain the pandemic impacts, do you think that introducing more cuts to interest rates in emerging countries including Egypt could contribute to enabling the private sector to play a critical role amid the crisis, the recovery phase, and on the post‑pandemic phase? Thank you.

Mr. ADRIAN: Thank you so much for that question. Concerning Egypt, of course, we have provided financing, rapid financing to Egypt and then started a program this summer. We are working very closely with the authorities in Egypt in order to help with the economic policy, as well as providing lending to the country in order to help the country recover from this crisis.

As you are pointing out, many countries in this crisis among the emerging markets have eased monetary policy. So the pandemic, of course, went hand in hand with a sharp decline in commodity prices and particularly oil prices. And that has generally led to a downward trend in inflation in many countries.

So with inflationary pressures easing, monetary policy could be eased.

And, indeed, we have seen many emerging market countries deploying asset purchase programs for the first time. So countries have not only lowered interest rates, many have also expanded balance sheets via asset purchases.

So that has helped ease financial conditions. That has helped the corporations and individuals in emerging markets to continue to borrow and to continue to have access to credit and to funding. And that has gone hand in hand with the complementary fiscal packages as well, which has helped corporations and individuals.

We have seen that countries that have eased monetary policy have generally seen an easing of financial conditions. So an easier access to financing more quickly.

And, of course, as you mentioned, the easing of monetary policy globally has also benefited emerging markets, including Egypt. So we have seen that after a sharp pull‑out of investors out of emerging markets in the early phase of the crisis, flows into emerging markets, in particular hard-currency flows. So flows into, say, dollar‑denominated or euro-denominated sovereign debt have returned to pre‑crisis levels. So those funding conditions really have recovered quite strongly.

Local government bond markets continue to be somewhat more stressed than at the beginning of the year, but, in general, emerging markets have benefited from the return of risk appetite and the easing of global financial conditions.

Mr. NATALUCCI: If I could maybe add something on the asset purchase in emerging markets. That is a topic that will be covered by one of the thematic chapters in the GFSR that will be released next week. Just to give you a preview of what we find: Nearly 20 countries have employed asset purchases in emerging markets. Countries have a wide variety in terms of like scope and tools utilized. In some cases, those have been focused on sovereign securities; in other cases, to private securities. Some cases, in the private market — first, in the primary market; in some cases, in the secondary market; the majority in the secondary market — our assessment so far is that they have been successful in lowering yields, in compressing term premium, and, importantly, in lessening some of the strain that we have seen in the markets.

Now, to the extent that these asset purchases will become part of the standard toolkit that emerging markets may use to accommodate‑‑to ease monetary policy going forward, there will be some trade‑offs to keep in mind there, in the sense of like the credibility of the institutional legal system in place for the central bank, the extent to which it may impair liquidity in the market for these securities, and ultimately so.  But this is just a sense of what we are going to be discussing in the chapter that will be released in more details next week.

Ms. ELNAGAR: Thank you. Now we go back to our online media briefing center. Can you give us more information regarding the weak tail of backs and banking system? Who may experience a capital shortfall this year? Any concrete examples?

Mr. ADRIAN: Yeah. Thanks so much for this question. In the GFSR, we are not releasing country or institution‑specific stress testing numbers. So what we are trying to answer is really whether the system is globally stable. We do find that at the global level, the banking system is assessed to be able to withstand further adverse shocks. So even if the pandemic lasts longer and further adverse shocks realize, we do assess the global banking system to be stable.

Having said that, there is quite a bit of variance across countries. There is a weak tail of institutions in some pockets. For example, emerging markets tend to have a higher fraction of banks that are likely to be undercapitalized in a further adverse scenario.

We also see that non‑GSIBs. The GSIBs are the globally non-systemic important banks, so these are the largest, the 30 largest institutions in the world, those are generally more stable than the non-systemic banks around the world.

We do also point to some regional differences in the Global Financial Stability Report. For example, you know, European banks are assessed to be somewhat more vulnerable than banks, say, in North America.

Mr. NATALUCCI: Maybe one point to add is that one of the findings is also that mitigation policies do matter. And so they [cover the shortfalls] with and without mitigation policies in the WEO adverse scenario. So we run the adverse scenarios in the World Economic Outlook, and the capital shortfall almost doubled, if we do not take into account mitigation policies‑‑mitigation policy here being credit guarantees and then a number of capital adequacy measures have been put in place.

Ms. ELNAGAR: Thank you. We have a question: You mention in the GFSR the disconnect between the markets and real economy. How much of this is a risk to financial stability?

Mr. ADRIAN: Thanks. That is an excellent question. When you look at global equity markets, many segments of global equity markets are back at levels or even above levels than they had been in January prior to the pandemic. So that is perhaps somewhat surprising because we are in the midst of the biggest economic recession since the Great Depression nearly 100 years ago.

Clearly, earnings going forward are lower than what they would have been forecast to be back in January. So the question is, why are the levels of asset prices elevated even though the economic situation is so dire? So this is this question about the disconnect.

I think there are two important factors to keep in mind. So one thing is that, of course, equity markets are forward‑looking. So to some extent, they are looking through the crisis and they are not just looking at earnings, say, in 2020 and 2021 but also at earnings beyond 2021 when the economy is expected to recover more and more steadily from this pandemic.

Secondly, the easing of financial conditions that is an intended consequence of aggressive monetary policies is, of course, one of the transmission channels of monetary policy. So G10 economies have expanded their balance sheets by more than seven and a half trillion dollars since the onset of the crisis, right? So this is a very, very large balance sheet expansion in those G10 economies.

And that has led to an easing of financial conditions. I.e. interest rates are lower, credit spreads are lower, and risky asset prices are higher.

So this easing of financial conditions, i.e. the return of risk appetite in risky asset markets has allowed corporations and households to continue to borrow and it has allowed many sovereign countries to keep issuing in markets at favorable rates.

So to some degree, the return of risk appetite is an intended consequence of the policies but, of course, there is a risk going forward that market sentiment might switch off again, if negative shocks occur. So there is both upside and downside risk and risk appetite could certainly — we could see some sell‑offs, but we could also see a further run‑up, depending on how the situation evolves.

Mr. NATALUCCI: If I may add, I think there are differentiation here across countries and across sectors. So across countries, for example, you have seen equity prices rebound much stronger in the United States than, for example, in the euro area. You have seen some rebound in emerging markets as well, a strong rebound in China. But also differentiation across sectors. So sectors that are more contact‑intensive, more hit by pandemic, like hotels, airlines — financials, as we discussed before, have been hit harder than others — while information technology, communications have been riding the pandemic higher.

If you take those and you think about, what are the factors driving equity prices? One is the composition of the indices. So indices that are more tech-heavy obviously have done better than others. Two, we have seen that the investor base in some countries with a very heavy retail investor base, and that may have contributed to provide support to asset prices. And then the policy support that Tobias mentioned. That was through the discount rate that had been used to discount future earnings, as well as compressing the aggregate of the risk premium.

I think the concern is that, if there is, for some reason, a trigger, resulting in a  reassessment of risk appetite, that could be because the recovery is delayed; it could be because the investors reassessed the extent of the policy. It could be geopolitical risks, like Brexit or something else. Then the issue is that, whether they have repriced enough in stretched valuation interact with existing vulnerabilities, amplifying the shock. So it is this interaction between stretched valuation and underlying pre‑existing vulnerabilities that is the concern from a financial stability perspective.

Ms. ELNAGAR: Thank you very much. Here is another questionAre investors sensing a permanent change in central bank reaction functions as indicated by the Fed's new framework? Would that justify the lofty asset valuations we have seen relative to the performance of the real economy?

Mr. ADRIAN: Thanks so much for this question. Central bank policies, and particularly monetary policy ,are certainly a key focus in this crisis. I would say that two aspects to your question that I would like to focus on in particular. So one is the very, very aggressive and very warranted intervention in March and April that aimed at easing monetary policy and easing financial conditions.

We have really seen for at least 30 years that central banks, including the Fed and in the U.S. have intervened when downside risks are rising and, of course, that oftentimes or usually goes hand in hand with a sharp sell‑off in asset markets.

This goes back, for example, to what people call “the Greenspan ‘Put’ ” in the 1987 crisis. There was‑‑in the 1998 crisis that was triggered by the Russian default. There was a policy rate cut. And that continued in 2008 and in this crisis. So whenever downside risks are increasing sharply, which is associated with a sell‑off, monetary policy tends to ease in order to mitigate some of those downside risks.

And that is certainly appropriate. This is what monetary policy should be doing. And investors are pricing in that kind of behavior. But it is not new in this crisis. It has been part of the conduct of monetary policy for many decades at this point.

Secondly, there is, of course, a shift in the monetary policy framework that was announced by the Federal Reserve in August, and that monetary policy framework is really focusing on inflation expectations. So what the Fed has announced is that it is going to target average inflation. So that means that while previously the target was about reaching 2 percent, now the target is about reaching two percent on average over some period of time. So that inflation can be below 2 percent for some time but also above 2 percent for some time. So that aims at making it easier to achieve the inflation objectives.

There were a number of additional announcements that went hand in hand with this framework change, including the way in which the real economy‑‑we will call it the dual mandate is expressed for the Fed. And so this framework change over time is expected to lead to better performance in terms of hitting the inflation target.

Mr. NATALUCCI: Maybe one only thing to add is to the extent that there might be unintended consequences from the policy and the objectives.It is important from an intertemporal standpoint to be aware of the benefits of today's policy intervention and what comes out of the framework with what could be unintended consequence in terms of building up of financial vulnerabilities. So the importance of using, for example, macroprudential tools, should vulnerabilities build up, as a way to address such vulnerabilities.

Ms. ELNAGAR: Thank you. We have time for one more question. Given the severity of this crisis, do you think regulators globally should ramp up their rules?

Mr. ADRIAN: That is very much for thanks very much for this question. It will certainly be a key question going forward. We have not seen the end of this crisis. While some economies have started to recover and financial markets have come back to some extent, we are far away from a full recovery. So it is too early to draw final conclusions.

But we can certainly make some preliminary observations concerning financial regulation.

First of all, let's think about the banking system. So the banks went into this crisis with higher capital and higher liquidity. And in our assessment globally the banking system is safe, even if they are further there are further adverse shocks. So that is a huge success. So the fact that the banks have had so much more capital than in the 2008 crisis has meant that these adverse financial feedback loops that were so prominent in the 2008 crisis were more or less absent in this crisis. There was a sell‑off in March, but that was arrested very quickly. So the combination of aggressive monetary policy and the higher capital and liquidity on the banks really have helped to mitigate the macro‑financial stability concerns. That is No. 1.

No. 2, there is a lot of thinking around the usability of buffers because, of course, capital and liquidity buffers are on the bank balance sheets to be used in times of crisis. So for the first time in this crisis, some jurisdictions had built up a countercyclical capital buffer. So this is a macroprudential capital buffer that was released at the onset of the pandemic in many countries. So that is one part of usable capital. But there are other parts of usable capital, and we will see over time how much both the capital and liquidity buffers will be used and are usable. So that will certainly be something to look at in the future.

Secondly, in terms of banks, of course, the stress tests have played an important role. So supervisors around the world are rolling out more and more COVID‑specific stress tests and that is a very important tool for regulators to assess intertemporal trade‑offs in between using capital today to allow banks to lend today and support economic activity while preserving financial stability going forward. So the role of the stress tests is certainly notable.

And then, of course, I already mentioned some of the issues in the non‑bank financial sector. In the non‑bank financial sector, we did see certain vulnerabilities come to the fore in April and March and February this year. So money market funds and money markets, in general, dried up and were vulnerable. In treasury markets, in the benchmark securities, such as U.S. treasuries, bonds, JGBs, and [gils], there was a kind of dash for cash which generated market illiquidity in those segments, which is certainly something to worry about. And there was, to some degree, a margin spiral, where margins increased in some segments of the market, which forced investors to deleverage very sharply. And this fed back into an acceleration of the sell‑off.

The central bank stepped in in many markets and arrested the sell‑off, but there are certainly some structural weaknesses that regulators are going to look into going forward.

Ms. ELNAGAR: Any follow‑up?

Mr. NATALUCCI: Maybe two quick ones. One is to make the point that we have been trying to make so far about these unintended consequences.

The extent to which the very low interest rates are expected to be very low for a very long time and compress volatility incentivize investors to take on more risk‑‑whether this is a duration risk, credit risk, [use the] financial leverage‑‑it is very important we continue to monitor the buildup of this risk. In fact, it would be great to have better, more robust data. So even, almost 15 years after the financial crisis, we are still in a situation where, in some segments of financial markets, there are not many data available to supervisors and regulators to assess risk.

No. 2, generalizing what Tobias was saying here, the need to consider whether the regulatory perimeter around non‑bank financial intermediaries needs to be broadened and whether we have enough macroprudential tools to address these vulnerabilities.

Ms. ELNAGAR: Thank you very much, Tobias, thank you to Fabio. Thank you to all our followers. We are very thankful for you following us on IMF.org. We have the press briefing tomorrow for the Fiscal Monitor and the opening press conference for the Managing Director. So we will see you online tomorrow.

Mr. NATALUCCI: Thank you very much.

Mr. ADRIAN: Thank you very much.