{
  "title": "Transcript of a Press Conference on the Analytic Chapters of the Global Financial Stability Report",
  "publication": "IMF News, April 11, 2012",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/54/tr041112",
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  "summary": "Two analytic chapters published ahead of the main Global Financial Stability Report:",
  "publishDate": "2012-04-11",
  "sections": [
    {
      "heading": "Overview and themes",
      "content": "- Two analytic chapters published ahead of the main Global Financial Stability Report:\n  - Chapter 3: “Safe Assets, Financial System Cornerstone?”\n  - Chapter 4: “Financial Impact of Longevity Risk”\n- Key framing:\n  - Safe assets: rising demand and declining supply could raise the price of safety; objective is to manage the adjustment smoothly and avoid excessive volatility.\n  - Longevity risk: people living longer than expected creates large additional financial and fiscal costs for individuals, corporations with defined benefit schemes, insurers, and governments."
    },
    {
      "heading": "Findings on safe assets",
      "content": "- Definition: to most investors a safe asset is an asset with low credit and market risks (examples cited: U.S. Treasuries, German bunds, Japanese government bonds).\n- Demand-side drivers:\n  - General uncertainty about the economic and financial environment.\n  - Central bank actions providing liquidity and keeping interest rates low.\n  - New regulatory reforms requiring more safe assets (e.g., bank requirements, collateral for central counterparties).\n- Supply-side pressures:\n  - Creditworthiness of sovereign debt in a number of advanced economies has suffered from fiscal strains.\n  - Private sources of pre-crisis safe assets (e.g., securitized products) were shown to be less safe than previously thought.\n- Quantitative estimate discussed:\n  - “by 2016, 9 trillion safest assets might be removed from the supply.” (question referenced from the report)\n- Implication:\n  - Increased demand and reduced supply point to a higher price of safe assets going forward; important to ensure an orderly transition to higher prices."
    },
    {
      "heading": "Policy recommendations on safe assets",
      "content": "- Demand-side:\n  - Regulations should avoid binary labels (\"safe\" vs \"unsafe\") and instead differentiate assets along a continuum of safety features.\n  - Implement regulation so institutions’ holdings of safe assets build up slowly and steadily to avoid destabilizing price effects.\n- Supply-side:\n  - Advanced-economy governments whose debt is no longer perceived as safe should commit to strategies of reducing debt levels and strengthening debt management to lower financing costs and rollover risks — this will also help restore safe asset supply.\n  - Private sector issuance of safe assets should not be impeded; issuance should be transparent and well-conceived so investors can price them appropriately.\n  - Restart securitization only on a sounder footing than pre-crisis practices; covered bonds and high-grade corporate debt can play roles as safe assets where appropriate.\n- Design considerations:\n  - Pooling mechanisms (e.g., pooled sovereign bonds) can produce safe assets if supported by robust frameworks ensuring payment and governance.\n  - A broader continuum of recognized safe assets can reduce concentration risks and potential bubble dynamics."
    },
    {
      "heading": "Findings on longevity risk",
      "content": "- Concept:\n  - Longevity risk: risk associated with people living longer than expected — financially, this raises the chance of running out of money in retirement.\n  - Historical observation: “Nearly all countries have continuously underestimated how long people will live by an average of about three years.”\n- Scope and magnitude:\n  - Longevity risk is relevant for individuals, defined benefit pension plans, insurance companies providing annuities, and governments providing universal old-age pensions.\n  - Global estimates presented in the chapter:\n    - “the size of longevity risk amounts to roughly about 50 percent of 2010 GDP in advanced economies, and 25 percent of GDP in emerging market economies.”\n    - These dollar amounts run “into the trillions.”\n  - For U.S. pension plans: data used from form 5500, most recent Department of Labor data available in the study is 2007; trend indicates pension plans have been updating mortality assumptions over time.\n  - Specific quantitative statements from the discussion:\n    - “about a 3 percent increase in total liabilities each year” (context: sensitivity/assumptions discussed).\n    - “in the study we show that there's a 9 percent increase, I believe, in the typical liabilities of U.S. pensions due to a 3-year longevity shock.”\n- Cross-country observations:\n  - Longevity risk adds roughly one-half again to the already large cost of aging for both advanced and emerging markets.\n  - Emerging markets: lower current aging share reduces immediate fiscal costs, but advances in medical care imply potentially larger longevity gains; individuals in emerging markets often bear more of the longevity risk due to less extensive formal retirement systems.\n- Methodology note:\n  - Example calculation approach: assume retirement needs of between 60 and 80 percent of pre-retirement income; an additional 3 years of life increases the aggregate resources required and leads to reported estimates."
    },
    {
      "heading": "Policy recommendations on longevity risk",
      "content": "- Timing principle:\n  - Start early — the earlier reforms and adjustments begin, the less disruptive they will be; likened to starting retirement savings in one’s twenties versus forties or fifties.\n  - While immediate market disruption is assessed as “fairly low,” delayed action increases future difficulty and vulnerability.\n- Specific measures:\n  - Encourage longer working lives by linking retirement age to developments in longevity (e.g., if longevity increases by 1 year, raise retirement age by 1 year).\n  - Consider automatic mechanisms to adjust retirement age with longevity to reduce political frictions.\n  - Use financial markets to transfer longevity risk via instruments and strategies that allocate risk to parties better able to bear it.\n  - Improve data collection on mortality and longevity to enable better policy design and allow private markets to price and transfer risks more effectively.\n- Allocation principle:\n  - Longevity costs are large enough that the burden cannot be absorbed by a single sector (government, corporations, or individuals) and therefore require sharing across sectors and suitable risk-sharing arrangements."
    },
    {
      "heading": "Scenarios, risks, and implementation considerations",
      "content": "- Safe asset price path:\n  - A smooth transition to higher safe asset prices is desirable; abrupt regulatory or demand changes can destabilize prices.\n  - Labeling assets on a continuum reduces concentration and bubble risk in a single asset class.\n- Longevity policy timeline:\n  - No precise single-year timetable recommended; the chapter emphasizes a continuous, proactive approach and that “the earlier you start the better.”\n  - Market disruption from longevity risk in the next few years is assessed as unlikely, but vulnerability grows over time.\n- Country-specific limits:\n  - Data limitations restrict detailed country-by-country quantification for some emerging markets; Table 4.2 and Figure 4.2 are referenced for country and aggregated results."
    },
    {
      "heading": "Tables and figures referenced in the discussion",
      "content": "- Figure 3.13: chart referenced on safe-asset removal estimates (used in the 9 trillion by 2016 discussion).\n- Table 4.2: longevity risk and fiscal challenges in selected countries.\n- Figure 4.2: aggregated position of emerging markets on longevity risk.\n- Table 4.3: mortality tables used by U.S. pension plans over time; discussion notes trend toward updated tables but data availability limited to 2007 in the Department of Labor series.\n\nTranscript of a press conference, April 11, 2012; Global Financial Stability Report analytic chapters discussed by José Viñals, Laura Kodres, Erik Oppers, and Silvia Iorgova.\n\n---\n\n\n References\n\n- Brazil and the IMF\n- Japan and the IMF\n- Spain and the IMF\n- Transcripts\n- Global Financial Stability Report: The Quest for Lasting Stability\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/54/tr041112"
    }
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    "Published: April 11, 2012",
    "Two analytic chapters published ahead of the main Global Financial Stability Report:",
    "Key framing:",
    "Definition: to most investors a safe asset is an asset with low credit and market risks (examples cited: U.S. Treasuries, German bunds, Japanese government bonds).",
    "Demand-side drivers:",
    "Supply-side pressures:",
    "Quantitative estimate discussed:",
    "Implication:",
    "Demand-side:",
    "Supply-side:",
    "Design considerations:",
    "Concept:",
    "Scope and magnitude:",
    "Cross-country observations:",
    "Methodology note:",
    "Timing principle:",
    "Specific measures:",
    "Allocation principle:",
    "Safe asset price path:",
    "Longevity policy timeline:",
    "Country-specific limits:",
    "Figure 3.13: chart referenced on safe-asset removal estimates (used in the 9 trillion by 2016 discussion).",
    "Table 4.2: longevity risk and fiscal challenges in selected countries.",
    "Figure 4.2: aggregated position of emerging markets on longevity risk.",
    "Table 4.3: mortality tables used by U.S. pension plans over time; discussion notes trend toward updated tables but data availability limited to 2007 in the Department of Labor series.",
    "[Brazil and the IMF](http://www.imf.org/external/country/BRA/index.htm)",
    "[Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)",
    "[Spain and the IMF](http://www.imf.org/external/country/ESP/index.htm)",
    "[Transcripts](https://www.imf.org/en/news/searchnews)",
    "[Global Financial Stability Report: The Quest for Lasting Stability](https://www.imf.org/external/pubs/ft/gfsr/2012/01/index.htm)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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