|FISCAL RISK AND FINANCIAL STABILITY: MANAGING INTERDEPENDENCIES AND SOVEREIGN RISK - SESSION 1: SOVEREIGN RISK, CAPITAL MARKETS, AND FINANCIAL STABILITY: THE INTERCONNECTIONS|
|Wednesday October 10, 2012|
09:30 AM - 11:15 AM
Hotel Okura Heian
Fiscal Risk And Financial
Managing Interdependencies And Sovereign Risk
The global economy and financial markets are facing unprecedented uncertainty.
Public debt levels are high and rising while financial stability remains
at risk. The advanced economies - particularly in Europe - remain at the
epicenter of many of these macro-financial pressures. Emerging economies
are not immune and are bracing to combat the fallout of crises elsewhere.
The lesson of recent years is how closely intertwined fiscal and financial
stability are, how easily contagion and adverse spillovers can spread across
borders and within regions, and how quickly the ability of governments
to access capital markets for debt financing can be impaired. This has
led to heightened attention to "sovereign risk" from governments
and financial markets and recognition of the need for pre-emptive policies
to ensure confidence in sustainability of public debt policies. This seminar
thus seeked to discuss fiscal-financial interdependencies and their policy
and capital market implications, and how best should conventional fiscal
and monetary policies be augmented to manage sovereign risk.
Session 1: Sovereign Risk, Capital Markets, and Financial Stability: The
This session discussed the main spillover channels through which sovereign
risk spreads into the financial sector and vice versa. It discussed adjustments
needed to the existing financial stability toolkit to capture sovereign
risk more systematically including from a macro-prudential policy perspective.
Key questions addressed included:
- How has market dynamics changed during the
crisis due to sovereign risk? What determines investor and market perceptions
of the riskiness of sovereign debt?
- How will changes in the new global capital
and liquidity prudential frameworks, as well as ongoing shifts in global
asset allocation strategies, affect sovereign financing strategies?
- Through what channels (capital/trade/confidence)
does sovereign risk spill over from one region to another?
- What are the roles of central banks and fiscal
authorities? What actions can they take to mitigate market stress stemming
from sovereign risk? Is there need for a global safety net to mitigate
This was the first of a two-part seminar on Fiscal Risk and Financial Stability.
The second seminar was Session 2: Restoring Public Debt Sustainability
in a High-Risk Environment
Mutoh , Chairman, Daiwa Institute of Research, Japan|
|Panelist(s):||Laurence Fink , Chairman and Chief Executive Officer, BlackRock, United States|
Nobuyuki Hirano , President, Bank of Tokyo-Mitsubishi UFJ, Ltd., Japan
David Lipton , First Deputy Managing Director, International Monetary Fund
Christian Noyer , Governor, Bank of France
Janet Yellen , Vice Chair, Board of Governors of the Federal Reserve System, United States
|Moderator(s):||Martin Wolf , Chief Economics Commentator, Financial Times, United Kingdom|
|Organized by:||Christopher Towe and Udaibir Das, Monetary and Capital Markets Department—International Monetary Fund; in collaboration with the Ministry of Finance, Japan|