Transcript

Transcript of a Press Briefing on the International Monetary Fund Staff Reports Entitled "Initial Lessons of the Crisis" and "State of Public Finances"

March 6, 2009

MR. MURRAY: Hi, good day. I’m William Murray, Chief of Media Relations at the IMF, and this is a briefing on a compendium of papers that have been prepared by the staff of the International Monetary Fund, at the behest of the International Monetary and Financial Committee, and to an extent, by the Group of 20 countries.

One group of papers, which you have via the Media Briefing Center, is on initial lessons learned from the global financial crisis, and we will be briefing on that this morning. Additionally, there’s another group of papers that deals with the state of public finances. It’s a separate exercise from the initial lessons paper, but nevertheless, it’s germane to current and evolving developments in the global economy.

This briefing will not be on the world economic outlook; you’ll have that later in the coming weeks. But let me first introduce the briefers today and then we’ll have some opening remarks from each of the participants.

At the far end of the table is Carlo Cottarelli, the Director of the Fiscal Affairs Department of the IMF; Reza Moghadam, Director of the Strategy, Policy and Review Department; Olivier Blanchard, Economic Counselor and Director of Research at the Fund; and to my immediate right is Jaime Caruana, the Financial Counselor of the Fund. Each of them has had a leading role in the crafting of these staff reports. They will be made public at 11:00 a.m. Washington time, 1600 GMT today. The contents of this briefing will be embargoed until that time, 11:00 a.m., 1600 GMT. Let me turn the table over now to Jaime Caruana.

MR. CARUANA: Thank you, good morning. One of the main points of the papers is the notion that the lessons and responses in the area of financial regulation and supervision are key elements in responding to the crisis and to preventing future crisis. But changes in regulation alone will not be enough, and that’s the reason why these papers focus on lessons in these three areas, and my colleagues will discuss those other areas, macro and architecture. I will concentrate my remarks on the financial aspects.

We have focus on five key areas that we see as priorities for reform in the regulatory framework. These are, first, extending the perimeter of regulation; second, reducing procyclicality; third, addressing market discipline and information gaps; four, improving cross border and cross functional regulation; and fifth is strengthening systemic liquidity management. I will basically concentrate mostly on the first two, which I think are where the debate perhaps is more open. On the first one, in order to better capture and to mitigate systemic risk, and at the same time, avoiding a rush to regulate, we are suggesting that regulation needs to be expanded to a wider range of institutions and markets under a functional approach.

Institutions need to be regulated by their functions or by their activities rather than by their legal structure. We are also suggesting a two tiered approach, one tier basically extending the disclosure requirements to provide enough information for supervisors to determine which institutions are systemically important, and the other tier being more narrow, though wider than the present one, that would be, to those institutions, where intensified prudential regulation and oversight is needed.

The second reform that we are advocating in the paper are policies to mitigate procyclicality. We argue that capital regulation and accounting standards should include incentives and guidance for the accumulation of additional buffers in good times. These measures should be non-discretionary, and the transition should be phased gradually so that they do not exacerbate the present situation. Accounting rules and valuation practices should be strengthened to reflect a broader range of available information on the evolution of risk through the cycle, and these would facilitate greater consistency with good risk management and sound prudential regulation.

We also – you will see in the paper that we also need to reduce procyclicality in other areas such as liquidity risk. We are in favor of the supplementary leverage ratio. You will see there are other important areas in the papers. But I think I will stop here. If you want to discuss some of the information or the cross border and cross functional regulation, I will be available for your questions. Thank you.

MR. BLANCHARD: Good – I shall talk about the role of the macro economy conditions in the crisis. If I had to list the causes of a crisis, what I would list would be, first, failure of market discipline, then failure of regulation, and then macro economy conditions, and I would do it in that order. When it comes to macro economic conditions, what you had before the crisis was five years of good times, strong growth, low interest rates, stable inflation, and I think there is no question that this led to over-optimism and understatement of risk. And then from that, basically what you saw was excess risk taking and the creation of bad assets and bad behavior in general.

So this was basically the environment in which the failure of market discipline and the failure of regulation basically came to allow the bubble and what followed.

I think the difficult question is, looking at these five years of growth, were times too good, or were we basically living on borrowed time, and we should have seen it coming? I think the answer is, to a large extent, these five years of high growth were for real, there was sustained productivity growth, and the world was doing well in general, so it’s not the case that this was just borrowed growth or borrowed time.

At the same time, it’s clear that this was not balanced growth and there were imbalances in a number of dimensions. One of the main imbalances was global imbalances – large account deficits of the U.S., the large current account surpluses in Asia and other parts of the world, and the question is whether they played the role in basically feeding the fire. And I think the argument can be made that, yes, to some extent they did, and the fact that there was a very high saving in the world, that to low interest rates, which by itself is not a bad thing, but basically led to all kinds of bad behavior.

The large capital flows to the U.S, and the demand for U.S. assets probably gave incentives to suppliers of these assets to supply what in the end were risky and what are dead assets, so in that sense, I think there’s no question that global imbalances played the role in the crisis.

The Fund had worried very much about global imbalances before the crisis, but had in mind a different scenario, for the most part, which was that the flows would turn around, the rest of the world would not love U.S. assets anymore and would turn away, and the dollar would depreciate very sharply.

That’s not the way the crisis came into being, and so far the dollar has been very strong. But that doesn’t mean that the risk wasn’t there, the risk was there. Large capital inflows really have the potential for danger. And I think that, even if this time this was not the trigger of a crisis, we have to basically focus on these large imbalances, we have to focus on large capital flows.

Now, let me turn to the role of monetary and fiscal policy in light of the crisis. In the years preceding the crisis, most central banks had adopted, with various degrees of rigor, an inflation targeting framework. Some were really just targeting inflation, some were targeting inflation and output. But there was wide agreement that this was a way to do policy. And if you wanted to argue that the central banks should care about asset price bubbles or credit booms, then the burden of the proof was on you.

I think what this crisis has done is basically turn the tables, and now the burden of the proof is clearly on the central banks to say we should look at it or we can’t do anything.

Can they do something? I think they can do something. They can construct measures of systemic risk, which would capture some of the evolutions which happened and we didn’t see in the last five years, and then having done this, they can, if and when these measures indicate a large increase in risk, react to it in various ways.

It remains the case that monetary policy is the wrong tool to deal with asset bubbles; regulation is the right one. But what we’ve learned is, regulation cannot entirely do the job, so monetary policy has to be ready to do so, and that’s one of the messages of the crisis for macro. On fiscal policy, again, I think there are many reasons to believe that budget deficits were too large in a number of countries before the crisis, but again, I don’t think that this was the major trigger or the major source of the crisis. There are still lessons to be drawn. The first one is, if budget deficits had been smaller before, we would have more fiscal space today to actually react to the crisis. And so I think the message that, in good times, you better have surpluses---which is a message that the IMF has been giving for a long time, and the crisis makes much stronger---so you really have to have the fiscal space when you need it.

The other aspect has to do with the tax structure. And basically, many advanced countries, actually many countries in general, tend to have a tax structure which favors leverage by households and by firms, namely deductability of interest payments and mortgages, for example, for households, decuctability of interest payments by firms for profit taxation. And these two lead to higher leverage than would happen without. And what we’ve learned is that high leverage, not only in the financial sector, but in the corporate sector, in household sector, is very dangerous, and so these are distortions which would eventually be removed. I shall stop here.

MR. MOGHADAM: Thanks. I will talk about the lessons of international financial architecture and the role of the Fund. I think the crisis has been a wake up call for reassessing the effectiveness of the international financial architecture, and in particular, of mechanisms to head off systemic risks.

In the paper that you have, one theme running through the paper is fragmentation. It talks about fragmentation of surveillance, it talks about fragmentation of policy coordination in the world, and cross border financial regulation, and it talks about fragmentation of liquidity support and generally financing.

And accordingly, it talks about lessons – needed reforms, if you like—in four areas, the first one, of course, being surveillance. And the paper argues for more coordination across institutions, for the need to drill down, to better connect the dots on policy recommendations, and the underlying analysis, and it talks about clearer warning signals, and more specific policy advice to policy makers. On international coordination, the paper argues that there is need for leadership, and in particular, the paper proposes the need for a, what do we call it, legitimate and efficient forum of top policy makers to respond to systemic risks.

And on cross border financial regulation, the paper argues for strengthening the ground rules before problems actually occur, and for better defining rules for burden–sharing across jurisdictions.

And finally, the paper argues for a better system of liquidity support and for providing greater resources to deal with external adjustment.

Of course, in all these areas, the Fund has a role to play, and a number of these areas, some of the reforms are already under way. Let me highlight a couple of things. For example, we are in the middle of thoroughly reviewing our lending facilities. We are also – we have also undertaken a number of initiatives to strengthen surveillance, and we are just about to start a new process, which I think is important progress coming out of the current crisis, and that’s the early warning exercise which we are about to launch with the financial stability forum. I’ll stop here and hand it over to Carlo.

MR. COTTARELLI: Thank you, Reza. The paper on the state of public finances looks at the conditions of public accounts in the world in light of the crisis. And it is clear that the crisis is having a major impact on public finance in virtually all countries.

The recession is reducing tax revenues. Governments are raising spending and cutting tax rates to provide stimulus to consumption and investment, and they are using public money to support the financial sector. This support to the economy and to the financial sector is necessary, and indeed, inevitable given the entirety of the crisis.

At the same time, there is also a need to ensure that the weakening in the fiscal accounts does not give rise to doubts, does not raise questions about the solvency of governments. Based on the January 2009 WEO update, which is basis for the fiscal projections in our paper, the average fiscal deficit in advanced G-20 countries is projected to rise from about two percentage points of GDP in 2007 to over eight percentage points of GDP in 2009. This is a six percentage point increase in two years, it’s obviously fairly large. In the same period, the fiscal deficit of emerging market G20 countries is projected to rise by three and a half percentage points of GDP.

Government debt is expected to rise even faster, by about 15 percentage points of GDP for advanced G20 countries in 2008/2009, and this is the largest increase in any two years since the end of the second world war. Further increases are projected in our paper in the following years. Moreover, the outlook will, of course, be worse if growth falls short of what is projected in the January WEO update, and if additional support were needed for the financial sector. Our paper presents some scenarios illustrating these downside risks.

The possible concerns about the reliability of the fiscal accounts that may arise from this figure should, in our view, be addressed. This is critical because if investors lose confidence in the solvency of governments, interest rates will rise and financial markets will be further destabilized, and the fiscal stimulus itself will not be very effective.

So how do we deal with this risk? Our paper proposes a strategy based on four pillars. The first pillar is that fiscal stimulus packages should not involve permanent fiscal cost. Fiscal stimulus would have to be long lasting, because the weakness in private sector demand is expected to be long lasting, but it should not be permanent.

Second, fiscal policy should be formulated within a forward looking medium term framework, ensuring that fiscal policy will be tightened while economic conditions improve. This framework must be transparent, it must be realistic, and to the extent possible, there should be specificity in terms of the policy actions to strengthen fiscal accounts over the medium term.

Third, over the medium term, growth potential should be raised through structural reform. This is because in the past, many countries solved the problem of high public debt not only through fiscal tightening, but also through higher growth.

And fourth, in countries subject to strong demographic pressures, there should be a strong commitment to address aging–related fiscal pressures by reforming health and pension entitlements. The fiscal costs of the crisis, as I said are fairly large, but they are relatively small (in our calculations less than seven percent), if compared with the net present value of future costs arising from entitlement programs. This means that reforming these programs can go a long way in creating fiscal space and ensuring long term fiscal solvency.

Now, of course, most of the components of this strategy are now new, and indeed, are part of the long standing policy advice provided by the IMF, but I will conclude by stressing that the weaker state of public finances has certainly raised the cost of the action. Thank you.

MR. MURRAY: Great, thanks, Carlo. Just a quick note before we take questions both from the audience here and from the Media Briefing Center. There will be Public Information Notices which summarize the IMF Executive Board’s discussion and review of the staff findings, both on the lessons of the financial crisis and on the state of public finances. Those notices will be posted on the external web site at 11:00 today and also distributed to you via the Media Briefing Center.

What I’m going to do is take questions from the audience here and then turn to the Media Briefing Center.

QUESTION: Two questions; one is, this is obviously coming right before the G20 finance ministers and leaders meeting; what do you want – what kind of message do you want them to take away from these reports, and what do you expect to come out of that meeting?

My second question is, for the fiscal stimulus, the report noted that a number of countries do still have room for that; which countries – it wasn’t clear to me exactly which countries still have room for stimulus.

MR. COTTARELLI: I don’t think I want to talk about specific countries. I can tell you what are the features of the countries, what it is that allows country to undertake fiscal stimulus, what fiscal stimulus should depend on. And I think that the first consideration is that one needs to look at the state of the economy, what is the outlook for growth. So the weaker the state of the economy, the more countries will have to do to support the economy. The second point is the existing fiscal space. So countries with lower debt, and especially countries that are paying a low interest rate on their debt, have relatively more room to expand fiscal policy. And obviously, the reverse is true: countries with high public debt that are paying high interest rate have less room to support the economy.

And the last point I want to make is that fiscal space is not something that is given. Fiscal space depends on the set of policies, including the medium term policies, that governments implement. Governments can create fiscal space by doing what I was mentioning earlier as part of our four pillar strategy, namely, reforms that reduce over the long run spending, These can create fiscal space could allow a larger increase in spending today.

MR. BLANCHARD: I want to add something, which actually is related to both of your questions. What is clear now is that even if growth turns around later this year or next year, it's going to take a long time before output goes back to normal so that basically we have to think of the fiscal impulses lasting for quite a while. At this stage what we see is that there has been an effort by most countries to basically have a fairly large fiscal stimulus for 2009, but when it comes to 2010, some countries don't have much in the works, and for 2011 it's too early to say, but there basically is very little that has been announced and it seems to us that at this stage the government should be thinking about doing more in 2010, maybe in 2011. And to the extent that the best fiscal stimulus is probably the moving forward of infrastructure projects which were intended in the future but just starting them earlier, this takes time. Therefore the government should be thinking about it now.

MR. MURRAY: Reza, the G-20 outcome question?

MR. MOGHADAM: The papers that you have today on the lessons, they were originally commissioned by the IMFC, but the G-20 Leader's Summit in November in Washington also asked the Fund given its macro financial expertise to draw lessons from the crisis for its next meeting in London. I suppose there are two related sets of issues before the G-20 when they meet in London. One is taking stock of where policies are and the immediate response to the crisis, and some of the issues that Carlo and Olivier just spoke about are related to that. So it is useful in that sense.

Secondly, they are looking at reforms to prevent crises from recurring in the same manner that it happened this time. These papers are useful across the board on that front. For instance, as you know, one of the key focuses of the G-20 is on regulatory reform moving forward and the issues that Jaime talked about in the paper are the lessons on the regulatory side, which would naturally feed into that process. In the same vein, the G-20 is looking at the reform of international financial architecture, reform of the IFIs, reform of the MDGs, and the paper on the global architecture is fed into that process. As you know, they are focused very much on Fund reform and some of the issues like resources for the Fund, strengthening surveillance of the Fund, reviewing the lending facilities of the Fund, these are all issues of relevance to the G-20 which are touched on in these papers.

QUESTION: I had two small questions. One was about the adverse impact that you were talking about in the papers arising from the fiscal deterioration. I'm assuming that the adverse impact you had in mind was an increasing cost of borrowing for governments. Secondly, on the entitlement issue, I wonder if you could try again to put that in perspective how much potentially could be freed up from long-term entitlement spending and would this help mitigate the risks for the long-term costs of borrowing.

MR. COTTARELLI: Let me start with the second one. You will find in our papers our calculations of this in terms of how much it can be freed up and it's done country by country for countries for which there are reliable projections on medium-term, long-term spending arising from entitlements. As I said, the figure that I can mention is the 7 percent. The ratio, for the average of the countries for which we have data, between the short-term costs of the crisis compared with the long-term cost of entitlements is lower than 7 percent which means there is quite a lot that you can do to finance the current fiscal expansion through the reform of entitlements.

On the first question, yes, if doubts arise about the viability of fiscal accounts, you will see this resulting first in an increase in interest rates on government borrowing.

MR. MURRAY: Thanks, Carlo. I'm going to turn to the Media Briefing Center and then I'll come back to the room. This is a question I think is directed to Reza. It's about the early warning system. Can you explain in more detail the early warning experiment mentioned? What will it look at and how will it be conducted? What do you expect to learn?

MR. MOGHADAM: I talked about fragmentation both in terms of surveillance and in terms of coordination among agencies. The early warning exercise is a way to overcome some of those problems. First of all, we have a number of processes internally: we have Article IV consultations with each country; we do the WEO and the GFSR in terms of multilateral surveillance. We have internal vulnerability analysis. We have the financial sector assessment programs looking at the regulatory standards and stress testing in individual countries. The first idea is to bring these processes together under one umbrella, so that is our internal work, to bring the risks associated either on country-specific risks or cross-country cross-cutting issues, all of these together in one framework.

Secondly, the idea is to collaborate with the Financial Stability Forum, draw on their expertise on the regulatory front to add the dimension of risks arising from regulatory issues in the financial sector to our macro prudential and macro financial analysis within the Fund. So it tries to bring all these elements together to identify the risks in the order of importance that we see and bring with that also a menu of policy options to respond to these risks. So that is the general idea. It is a complicated process and our plan is to have this ready for the Istanbul Annual Meetings, and the process has already started to put the nuts and blots in place for us to be able to do that.

MR. MURRAY: Thank you. I'm going to turn to the room again, the gentleman in the center.

QUESTION: Also two questions. One, it seems that countries are reacting on the stimulus front and so forth, but perhaps the banking issue has not been addressed adequately, and I wonder if Mr. Caruana could talk about that. What do countries need to do to improve their financial system in the United States perhaps in regards with European banks exposed to Eastern Europe which is a big concern?

Then the second question, see in the PIN that it said that there were inadequate warnings about the crisis by the Fund among others and I remember that the WEO didn't warn about this. I remember that the report that Mr. Caruana -- did talk about the subprime, but the main sort of report by the IMF didn't talk about this issue and I wonder if you could tell us why do you think you missed it because that will help us improve in the future. Thank you.

MR. CARUANA: Can I start with the banking part? As we explained at the beginning, the financial part of these papers is looking into the future, how to prevent, these are preventive kinds of exercises trying to draw the lessons that will avoid or mitigate future crises. We have not dealt with how to manage the crisis. We did that in the January update of the GFSR and then we dealt with how to deal with the banking issues. Basically the messages that we were sending, and there will be a much more detailed analysis in the GFSR that is coming, so I don't want to let's say pre-release the GFSR, but this will be a very important part of the GFSR that will come over the next month. But in any case, what we said already is that the policies that need to be applied have these three elements, the liquidity, the capital and the cleansing of the balance sheets and it was on the cleansing of the balance sheets where perhaps more attention was needed and that was the basic message that we were sending. You need to think what is the future financial system, how to move to that, how to facilitate restructuring, and at the same time facilitating the cleansing of the balance sheets. In that way you will improve the confidence of the financial system and you will reduce the uncertainty of the financial system and those are key elements to restore a working financial system and working markets which now are still not working properly.

MR. MURRAY: Any additional remarks?

MR. MOGHADAM: I think there was nobody that basically predicted the crisis in the manner that it ultimately unfolded. What is important for us is to look back and see what we could have done better, and that's part of this exercise in a very candid way, whether it is on surveillance, whether it is on the way our facilities work, on internal products that we do and on external products that we do. We have tried to look back in a candid way and to see how we can do things better and draw lessons from it. So it is difficult to pinpoint. There were issues that are highlighted here. For example, we were very focused on emerging market risks, not so much focused on advanced economies. Our internal vulnerability exercise was based on looking at emerging markets and not at the advanced economies. We are correcting this. We had identified risks but perhaps we had not drilled down enough to see what are the solutions to these risks and what are the systemic aspects of these risks. These are things which it's again easier to identify in retrospect rather than at the time. A crisis will occur again. It's not that you can put in place safety valves to completely prevent future crises, but the issue is what can we do better and we are very keen to show that we are ready to identify what we didn't do well and what we can do better and that's one of the key purposes of this exercise and why it is done so quickly.

MR. MURRAY: Thanks, Reza. I'm going to go to the Media Briefing Center. It's sort of in line with the last question. Much of the world regards what is now happening as an “American crisis” or at least one rooted in the U.S. The IMF refuses to acknowledge even the sentiment. Is it a lesson in itself?

MR. MOGHADAM: -- the question?

MR. MURRAY: The question is we are not acknowledging this as an “American crisis” and isn't that a lesson that we should be learning?

MR. MOGHADAM: I don't think that is fair. I think we are not only acknowledging where the roots of the crisis are, but also more importantly now we have to see how to deal with the crisis and I think the Fund has been quite forward in terms of coming up with ideas whether it is on the stimulus, whether it is on the financial sector, and both for the U.S. and elsewhere in the world, and we have been doing that and we will continue to do that. And it's also important to realize how the contagion elements could unfold and that's another very key focus of all the products that we engaged in right now.

QUESTION: I have three questions.

MR. MURRAY: Three questions?

QUESTION: Yes. On the surveillance. What are the specific proposals of the IMF about what government should report from now on specifically? Do you have a specific proposal on surveillance on hedge funds and situations like this? The number two question, Mr. Blanchard, about the role of central banks, you were making a comparison with one what was done before the crisis, what should be done in the future. Number three question, do you confirm that in 2009 you are going to cut the negative growth minus 0.5 or what's your estimate?

MR. MURRAY: I can eliminate the last question because that's a World Economic Outlook question.

QUESTION: But it's already come out.

MR. MURRAY: We'll go for the other two.

MR. CARUANA: I guess that the first question more than surveillance is more regulation of the hedge funds is what you were asking, what is your approach to regulation of hedge funds? That was the first question?

QUESTION: Yes. Specifically what's the role of governments on this?

MR. CARUANA: I could answer at least part of it by saying that the approach that we have taken here is that we should capture systemic risk and that the way to do it is by a functional approach, and by functional means those that perform -- financial institutions that have a function that is systemically important should be regulated, and then I explained that there is a two-tiered approach. First is expanding the oversight, the disclosure. I think hedge funds that have some size will be under this, so there should be kind of disclosure for hedge funds. And then there should be an analysis on the part of supervisors of which institutions whether they are hedge funds or not hedge funds are systemically important, and we have to recognize that systemic today has more meanings than before the crisis. Systemic today is not just size, it's interconnectedness, it is the business model that they have, the funding model. It is much more complex. But these judgments should be passed and then decide which institutions should be under prudential regulation, which would mean which institutions, for example, are you going to have some kind of capital requirements, liquidity requirements, or special resolution frameworks. That is not automatic. It should be decided. But for example, let me give you one example. Any financial institution that would be engaged in selling credit default swaps, insuring writing credit protection in a very heavy way that provides with a lot of interaction and interconnection should be in our view subject to some capital requirement and if it would happen whether it is an insurance company, such as AIG, or if it is a hedge fund, or if it is a bank, it is not important what is the legal structure, the important thing is that they are engaged in a systemic activity that creates size and interaction and therefore it requires some capital requirements or some prudential controls. And we don't enter into the details of how these requirements should be. We are not the regulator. It should be for the regulators to do that. But that's what we have presented. We do not even say that all the prudential regulations across different institutions should be the same, but there should be some similarities. I think this is a very important debate that has to happen and we wanted to contribute to that debate with this paper.

MR. MURRAY: Thanks, Jaime. I think you had a question about surveillance and how it will evolve.

MR. BLANCHARD: Central banks.

MR. MURRAY: Central banks, as well.

MR. BLANCHARD: Three specific suggestions about the way central banks should go about their business in the future. The first one is that they should construct measures of systemic risk. The second is that they should monitor these measures. And the third is if these measures indicate an increase in systemic risk that they should take steps. Take steps I think has two dimensions. They could change some of the rules, there are all kinds of regulatory measures which can be taken. But they should, if they think this is not sufficient, actually use regular monetary policy, maybe interest rate to lean against the wind if needed. These are very general statements but they are not empty in the sense that I think we can do much better in measuring systemic risk. This is a theme which has already come from this press conference. We can do much better than we have. Let me give you an example which I find striking. If you take the last two bubbles in the U.S., the first one is the high-tech bubble and the second one is the housing price bubble. The high-tech bubble basically had limited real economic effects. Basically when it crashed it was not pleasant but it didn't lead to a very deep recession. As we know, the housing bubble has led to a very deep and long-lasting recession. What's the difference between the two when you look back? The first one was basically not associated with much intervention of the financial system. It was basically people buying stocks so when the stocks went down people lost, but that was more or less the end of it. This one was very different. It was associated with strong interactions with the financial system, high leverage, so that when housing prices went down the banking system was in trouble. We now understand that much better than we did. So when we construct measures of systemic risk, I think if we had had these measures in the early 2000s we would have said there is an issue but the systemic risk is not so high. If we had had this measure in 2006 and 2007, we would have said there is a very real systemic risk. So I think we can do much better in constructing these measures. Then once we have that I think we're in a better position, the central banks are in a better position to actually do something about it.

MR. MURRAY: Thanks. I think we're going to take one more question and then wrap this up. There are a number of questions in the Media Briefing Center that we'll follow-up independently given the nature of some of those questions that are not germane to the papers. The gentleman here and then we'll wrap it up.

QUESTION: I was just hoping you could help us maybe connect the dots between your proposals and some of the proposals that are already floating out there. For example, you guys are proposing a code of conduct. Brown and Berlusconi have also come up with proposals for some kind of principles. I'm just wondering do you feel like the G-20 is kind of on the same page as far as creating this broader code of conduct across financial regulation? My second question is similarly with the central bank proposal of getting more into systemic risk. The U.S. Congress is considering making the Fed a risk watchdog and the ECB is also moving in that direction. Is that moving in the right direction from your perspective?

MR. CARUANA: Let me start with the second. We just think it is important to have some supervisor that has an overall view of systemic risks, so I think this is pointing us in the right direction and we are calling for that in the papers that you have there. In terms of the code of conduct, I would say that the important thing there is that what we are saying is that there is a need for fundamental improvements in the institutional and legal setting in some areas that refer to the cross-border management of financial institutions such as early remedial action, the resolution of cross-border institutions and the burden sharing. These are very difficult questions and sometimes the cooperation among supervisors is limited by these questions not being resolved, and for resolving these questions it is important to get more additional political support and that is what we are saying. As it was mentioned before, these papers have been shared and have been -- we have benefited from the multiple discussions where we've participated. We participated in the Financial Stability Forum, we participated in the working groups around the G-20. We are benefiting from these discussions and we are trying to contribute to these discussions. This is our own reflection that I think we are trying as much as possible to contribute to the different debates that are happening at this very moment. We don't see inconsistencies.

MR. MURRAY: I think that's it. Thank you for joining us. Again Carlo Cottarelli, Reza Moghadam, Olivier Blanchard, and Jaime Caruana, and everyone here or via the Media Briefing Center. 11:00 a.m., 1600 GMT embargo. This briefing will be web cast after that hour and there will be a transcript later today. Thank you for joining us. If you have any follow-up, media@imf.org is the email address. Thanks again.