International Monetary Fund


Unwinding Public Interventions in the Financial Sector

Preconditions and Practical Considerations—IMF High-Level Conference

Washington DC, Thursday, December 3, 2009

As the crisis abates, the key challenges will be withdrawing fiscal and monetary support for the financial sector, while balancing the goals of price stability and sound public finances over the medium term, restoring financial stability and returning crisis-related assets to private sector control, and laying the foundation for stable and sustainable growth. The policies governments pursue in this context can have spillover effects in other countries, and on the financial markets. Therefore, most policymakers need to take great pains to avoid withdrawing support too abruptly or without a proper assessment of the impact of unwinding plans on the domestic and global economy and financial systems, including in the emerging market economies.

The IMF conference will provide a forum for discussion of issues relating to the unwinding of public interventions from the financial sector. It will deliberate strategies governments could follow to normalize policies, and the key principles for timing and sequencing, the scope of the exit process, and areas for domestic and cross-border coordination. The discussions will take place in four sessions: (i) Where Are We Now in the Crisis and Prospects for Unwinding Public Interventions; (ii) Public Finance Aspects of Unwinding; (iii) Identifying Preconditions and Practical Considerations for Unwinding Liquidity Support and Guarantees; and (iv) Crisis-Related Assets and Restoring Private Control.

The conference is by invitation only.

This website contains papers and web links to papers that were presented at the conference. The views expressed in these papers are those of the authors only, and the presence of them, or of links to them, on the IMF website does not imply that the IMF, its Executive Board, or its management endorses or shares the views expressed in the papers.
Venue : IMF, Washington D.C
Thursday, December 3, 2009
8:15–8:45am Registration and Breakfast
8:45–9:00am Welcome remarks: John Lipsky, First Deputy Managing Director, IMF.
9:00–10:45am Session 1: Financial Crisis—Where Are We Now and What are the Prospects For Unwinding Public Interventions?

This session sets the stage by exploring the current state of the financial system and capital markets, prospects for a systematic move towards unwinding public sector support in the financial sector, and the existence of required preconditions to balance risks to financial stability during unwinding. Discussion in this session will also highlight how these might affect: (i) the timing and speed of unwinding; (ii) market functioning; and (iii) impact on asset prices.

Moderator: José Viñals, Financial Counsellor and Director, Monetary and Capital Markets Department, IMF.

Statements by panelists:
Christine Cumming, First Vice President, Federal Reserve Bank of New York; Hervé Hannoun, Deputy General Manager, Bank for International Settlements; Malcolm Knight, Vice Chairman, Deutsche Bank; Antonio de Lecea, Principal Advisor, European Commission; Georges Pineau, ECB's Permanent Representative in Washington, D.C.; Manuel Sánchez González, Deputy Governor, Bank of Mexico.

Discussion with the panelists and conference delegates.

Papers presented at the conference

Exit Strategies: Bank for International Settlements -- Hervé Hannoun
Exit Strategies: Deutsche Bank -- Malcolm D. Knight
Exit Strategies: An EU Perspective -- by Antonio de Lecea
Exit Strategies: European Central Bank -- by Georges Pineau
Exit Strategies: Bank of Mexico -- by Manuel Sánchez
Key Issues

1. What preconditions are there for ensuring a safe and durable disengagement by the public sector? What are the factors that should determine the scale, timing, and speed of unwinding?

2. What are the essential elements in an unwinding strategy? How can the unwinding process promote the right incentives for building a resilient financial system, sustainable and balanced growth, and price stability?

3. What are the important interdependencies among various intervention measures that might make unwinding a complex matter? Which intervention measures have the greatest potential for cross-sectoral and cross-border spillovers?

4. In what areas could international coordination of unwinding lead to improved outcomes for all countries, and which modalities of coordination are the most appropriate?

5. How should the appropriate time for withdrawing support from the financial sector be determined, and which indicators should be used (e.g., macroeconomic and financial market). Should government or central bank support be withdrawn first?
10:45–11:15am ***Coffee Break***
11:15–12:30pm Session 2: Managing Fiscal Risks—Public Finance Aspects of Unwinding

This session examines unwinding from the need to maintain sustainable, orderly, and transparent public finances. It will address issues such as: (i) how to balance responsibilities to taxpayers with adequate support for the financial sector and the real economy; (ii) the implications of the unwinding for fiscal policy and public financial management; and (iii) the delineation of roles between budgetary government and other public sector players (such as the central bank).

Moderator: Carlo Cottarelli, Director, Fiscal Affairs Department, IMF.

Statements by panelists:
Mitsuhiro Furusawa, Senior Deputy Director General, Ministry of Finance Japan; Simon Johnson, Professor, MIT and Peterson Institute; Christian Kastrop, Deputy Director General, German Federal Ministry of Finance; Nigel Ray, Executive Director, Fiscal Group, Australian Treasury.

Discussion with the panelists and conference delegates.

Papers presented at the conference

Exit Strategies: Japanese Ministry of Finance -- by Mitsuhiro Furusawa
Exit Strategies : Massachusetts Institute of Technology -- by Simon Johnson
Exit Strategies: German Federal Ministry of Finance -- by Christian Kastrop
Exit Strategies: Australian Treasury -- by Nigel Ray
Key Issues

1. What are the key considerations to be taken into account in protecting the sustainability of the public finances as support for the financial sector is unwound? How should the future tax burden of bailout and other measures be weighed against the goals of maintaining financial sector stability and ensuring a return to growth?

2. The crisis demonstrated the ability of governments to use balance-sheet and off-balance sheet transactions (rather than traditional government spending) to pursue fiscal policy goals. What do these changes in fiscal policy instrumentation imply for the management and analysis of fiscal policy as the unwinding proceeds?

3. Quasi-fiscal activities were a prominent feature of the response to the crisis (e.g., central bank subsidization of sectoral lending). How important is it to reverse these?—i.e., return to the principle of reflecting all subsidies and taxation transparently in the budget and subject them to the prioritization of the budgetary process.

4. Guarantees and governments’ assumption of other contingent liabilities appeared to be costless, in many cases. What should governments be doing to manage guarantees appropriately and frame decisions about them correctly? To what extent is it legitimate for governments to maintain guarantees?

5. Are there elements in the unwinding of fiscal support that suggest the need for international coordination?
12:30–1:00pm Special Remarks by Sir Andrew Crockett, President, JPMorgan Chase International
1:00–2:00pm ***Lunch***

Session 3: Financial Sector Interventions—Identifying Preconditions and Practical Considerations for Unwinding Liquidity Support and Guarantees

This session will consider market factors key for a successful unwinding process. It will explore: (i) the role of market indicators that could guide an active process of unwinding; (ii) technical aspects relating to the unwinding of liquidity provisions, and guarantees; and (iii) those aspects that could impact across markets and where close intra-agency and cross-border coordination of actions is needed. The session will also discuss interdependencies among various intervention measures.

Moderator: Olivier Blanchard, Economic Counselor and Director, Research Department, IMF.

Statement by panelists:

Charles Bean, Deputy Governor, Bank of England; Matt Carter, Managing Director, Head of Sovereigns and Agencies, RBS Global Banking & Markets; Dino Kos, Managing Director, Portales Partners, LLC; Haruyuki Toyama, Director General, Bank of Japan; Edwin M. Truman, Senior Fellow, Peterson Institute.

Discussion with the panelists and conference delegates.

Papers presented at the conference

Exit Strategies: Bank of England -- by Charles Bean
Exit Strategies: Royal Bank of Scotland -- by Matt Carter
Exit Strategies: Portales Partners, LLC -- by Dino Kos
Exit Strategies: Bank of Japan -- by Haruyuki Toyama
Exit Strategies: Peterson Institute for International Economics -- by Edwin M. Truman
Key Issues

1. What macroeconomic and financial market indicators can help guide the unwinding process? Are recent economic and market conditions supportive of current timetables and plans for unwinding or do they suggest different times-tables?

2. What considerations should guide the timing, sequence, and preconditions of withdrawing government liability guarantees and liquidity support programs? How are these considerations affected by monetary and fiscal policy conditions?

3. What are good ways to unwind financial sector interventions in areas such as debt guarantees and deposit insurance? How can market incentives be best included into the unwinding process to help ensure an orderly, market based exit?

4. Will the process of withdrawing public support in the financial sector be influenced by the ongoing regulatory and supervisory reform in major countries?

5. Which types of crisis policy unwinding will have the greatest impacts across sectors and borders and should, therefore, require the most inter-agency and cross-border coordination?

6. Which crisis policies, when unwound in an uncoordinated manner, bear the greatest downside risk of distorting capital flows and financial intermediation, or of regulatory arbitrage?
3:45–4:15pm ***Coffee Break***

Session 4: Crisis Related Assets—Practical Considerations for Restoring Private Control

This session will explore some of the key technical complications and sequencing issues that might arise from unwinding intervention measures in the form of (i) capital injections; and (ii) purchase of assets and assumption of liabilities by the state. It will also briefly discuss arrangements, going forward, for a public-private partnership to share the burden associated with public interventions to repair the financial system.

Moderator: Reza Moghadam, Director, Strategy Policy and Review Department, IMF.

Statement by panelists:

Aerdt Houben, Director, De Nederlandse Bank; Nigel Jenkinson, Adviser, Financial Stability Board; Simon Linnett, Executive Vice Chair, Rothchild; Thomas Stoddard, Senior Managing Director, Blackstone.

Discussion with the panelists and conference delegates.

Papers presented at the conference

Exit Strategies: De Nederlandsche Bank -- by Aerdt Houben
Exit Strategies: Financial Stability Board -- by Nigel
Exit Strategies: Rothschild -- by Simon Linnett
Exit Strategies: The Blackstone Group -- by Thomas D. Stoddard
Key Issues

1. What are some of the main complications that might arise from unwinding public interventions in the form of capital injections, asset purchases and the assumption of liabilities by the state? What are the early lessons from exit that has already taken place (e.g., repayment of public funds by U.S. banks and others)?

2. What is an appropriate sequencing to be considered? Can we identify which measures are the most distortionary, and should these be removed first?

3. How important is the aspect of competition in the financial sector for the design of exit policies? How should exit policies be communicated?

4. How can we ensure that private capital used to replace public capital is of at least the same quality as the public capital? What could be some key arrangements for sharing the burden associated with public interventions to repair the financial system and recovering taxpayer outlays?

5. How much will the unwinding be influenced by the probable financial regulatory structure at the time of the unwinding? That is, are there technical complications related to the exit to a new type of setting?

Key takeaways: José Viñals, Financial Counsellor and Director, Monetary and Capital Markets Department, IMF.
Closing remarks and next steps: John Lipsky, First Deputy Managing Director, IMF

Conference Reference Material
A Strategy for Renormalizing Fiscal and Monetary Policies in Advanced Economies; Carlo Cottarelli and Jose Viñals; IMF Staff Position Note:
Crisis-Related Measures in the Financial System and Sovereign Balance Sheet Risks ; IMF Policy paper:
Cross-Cutting Themes in Major Article IV Consultations ; IMF Policy paper:
G-20 Commnuniqué
Market interventions during the financial crisis: how effective and how to disengage? Chapter 3 -- Global Financial Stability Report (GFSR); October 2009:
IMF Note on Global Economic Prospects and Principles for Policy Exit:
Unconventional Choices for Unconventional Times: Credit and Quantitative Easing in Advanced Economies; IMF Staff Position Note:

List of Participating Countries, Agencies, and Institutions
Countries and Economy
Argentina, Australia, Brazil, Belgium, Canada, Chile, China, France, Germany, Hong Kong SAR, India, Indonesia, Ireland, Italy, Japan, Korea, Mexico, The Netherlands, The Philippines, Portugal, Russia, Saudi Arabia, South Africa, Spain, Sweden, Thailand, Turkey United Kingdom, and United States.
Agencies and Institutions
Bank for International Settlements (BIS), European Commission (EC), Financial Stability Board (FSB), Organisation for Economic Co-operation and Development (OECD), and The World Bank.
Blackstone, Deutsche Bank, JPMorgan Chase International, Massachusetts Institute of Technology, Peterson Institute, Portales Partners, Rothschild, and Royal Bank of Scotland.