TOKYO Oct 10 The following are highlights of
the International Monetary Fund briefing on its Global Financial
Stability Report on Wednesday.
JOSE VINALS, DIRECTOR OF IMF'S MONETARY AND CAPITAL MARKETS
"Policy actions taken in Europe, in the United States here
in Japan and also in emerging markets have improved investor
sentiment and helped markets rebound in recent months. Yet our
assessment that confidence is still very fragile and that risks
have increased compared with the last report in April my main
message is that further policy efforts are needed to gain
"The point I would like to stress is that we should not let
the current market conditions, which have improved, lead to a
false sense of security."
"The actions taken by the European Central Bank in recent
weeks have helped remove investors' worst fears but these
policies will need to be built upon both at the national and
euro level area level.
"There are fourth things that are needed. First, safer
banks. Progress has been made recently including the European
banking authorities' capital enhancement exercise but weak banks
still need to be restructured and when nonviable they need to be
resolved. Second, safer sovereign thorough well timed fiscal
consolidation and safer economies through structural reforms.
Third, strong firewalls. The European stabilisation mechanism
and the European Central bank OMT bond purchasing programme must
be regarded by markets as real and not virtual and should be
coupled with credible conditionality. And finally, there is a
need for a stronger union. Establishment of the single
supervisory mechanism is an important step that needs to be
implemented without delay and it's also essential to provide a
clear road map towards the completion of a banking union."
US AND JAPAN:
"A key lesson for the United States and Japan from the
European debt crisis is that delaying policy adjustments until
market strains become evident leads to financial turmoil and to
harsher economic outcomes. Fiscal imbalances are amenable to
medium term adjustment, but a blueprint for policy actions must
be developed right away.
One point that I would like to stress is that we should not
let current market conditions, which I said have improved, give
rise to a false sense of security.
Indeed, safe haven flows to the United States and Japan and
record low official interest rates through easy monetary
policies have led to a suppression of risk premia in government
and corporate bond markets.
Furthermore in the United states a potential political
impasse could result in a repeat of debt ceiling strains and/or
a push over a "fiscal cliff" which would entail significant
risks to the US and the global economy. So it is essential that
both risks are avoided and an end is put to those policy
In Japan, its high sovereign debt and the rising
concentration of government holdings in the banking system pose
important stability risks. For example, we project that in Japan
bank holdings of government bonds could rise to about one third
of total bank assets in five year's time, tying banks ever
closer to the sovereign and potentially weakening financial
stability should interest rates rise. So in the case of Japan
macro prudential vigilance and a further strengthening of bank
balance sheets and bank business models are warranted together
with much needed fiscal consolidation."