Transcript

Press Briefing Transcript: Global Financial Stability Report, Spring Meetings 2025

April 22, 2025

Speakers:

Tobias Adrian, Financial Counsellor and Director, Monetary and Capital Markets Department, IMF
Jason Wu, Assistant Director, Monetary and Capital Markets Department, IMF
Caio Ferreira, Deputy Division Chief, Monetary and Capital Markets Department, IMF

Moderator: Meera Louis, Communications Officer, IMF

Ms. LOUIS: Good morning, everyone, and welcome to the GFSR press conference. And thank you for joining us today. I am Meera Louis with the Communications Department at the IMF.

Joining us here today is Tobias Adrian, Financial Counsellor of the Monetary and Capital Markets Department. Also with us is Jason Wu, Assistant Director, and Caio Ferreira, Deputy Division Chief of the Monetary and Capital Markets Department.

So, Tobias, before we turn the floor over for questions, I wanted to start by asking you, what were some of the challenges you and your team faced in preparing for this report? We are in uncharted territory now. So how did you come up with a strategy to shape this report?

Mr. ADRIAN: Thank you so much, Meera. And welcome, everybody, to the International Monetary Fund.

We are launching the Global Financial Stability Report, and let me give you a couple of headline messages from the report.

Our baseline assessment for global financial stability is that risks have been increasing, and there are really two main factors here: One is that the overall level of policy uncertainty has increased; and the second factor is that the forecast of economic activity going forward is slightly lower, as Pierre‑Olivier presented at the World Economic Outlook press conference just now. So, it's a combination of a lower baseline and larger downside risks. Having said that, we do see both downside and upside risks, and we will certainly explain more about the two sides of uncertainty throughout the press conference.

So let me highlight three vulnerabilities that are driving our assessment.

The first one is the level of risky asset values. We have certainly seen some adjustment in risky asset values. It's important to see that in the broader context of where we are coming from. And, in recent years, we saw quite a bit of appreciation—particularly in equity markets and in some sectors, such as technology. So valuations were quite stretched and credit spreads were very tight by historical standards. And we have certainly seen some decline in valuations; but by historical standards, price-earnings ratios in equity markets, for example, continue to be fairly elevated and credit spreads and sovereign spreads have widened to some degree, but they are still fairly contained by historical standards. The stretching of asset valuations continues to be a vulnerability we are watching closely.

The second vulnerability is about leverage and maturity transformation in the financial system, particularly in the nonbank sector, where we are looking closely at how leverage is evolving. As market volatility has increased, we have seen some degree of deleveraging, but market functioning has been sound so far. With higher volatility, we would expect asset prices to come down, but the functioning of how those asset prices adjusted has been very orderly to date.

The third vulnerability that we are watching is the overall level of debt globally. In the past decade, and particularly since the pandemic in 2020, sovereign debt levels have been increasing around the world. It's the backdrop of higher debt that can interact with financial stability and that's particularly true for emerging markets and frontier economies, where we have certainly seen some widening of sovereign spreads. Issuance year to date has been strong, but, of course, the tightening of financial conditions that we observed in the past three weeks has an outsized impact on those more vulnerable countries.

Ms. LOUIS: Thank you. Thank you, Tobias.

And now I will open up the floor to questions. If you could please identify yourself and your outlet. You also have the report online, if need be. And you can also join us online via the Webex link. Thank you.

So, the lady here in the front.

QUESTION: Hi. My name is Ray. I am with 21st Century Business Herald, Guangdong, China.

So, my question is that, you've highlighted a series of vulnerabilities and risks. So how does the IMF assess the risk of these tensions triggering broader macro‑financial instability, especially in emerging markets with weaker buffers?

My second question is that during times of global uncertainty, safe haven assets, such as gold and US treasuries, have been very volatile recently. So how does the IMF assess the volatility affecting currency stability? Thank you so much.

Ms. LOUIS: Thank you. Tobias?

Mr. ADRIAN: Thanks so much.

So, starting with the second part of your question. We have seen a strong rally in gold prices, which is the sort of usual relationship we see in safe haven flows. When there is a high level of uncertainty, risky assets are selling off, oftentimes gold is viewed as a hedge asset and it has been appreciating.

Of course, US treasuries remain the baseline reserve asset globally. It's the largest and most liquid sovereign market. And  we have seen yields move. They have been increasing in the past two weeks, which is somewhat similar to the episode in 2020, when longer‑duration assets had yields increasing, as well. What is somewhat unusual is that the dollar has been falling, to some degree, but it's important to keep that in the context of the strong dollar rally previously.

Concerning the emerging markets and frontier economies, yes, the tightening of global financial conditions has an outsized the impact on weaker economies. We have seen a number of weaker emerging markets and frontier economies with high levels of debt. We have seen issuance throughout last year and earlier this year, but tighter financial conditions certainly adversely impact the financing conditions for those countries.

Mr. WU: Maybe just to quickly add on emerging markets.

I think it's important to distinguish the major larger emerging markets versus the frontiers, as Tobias has mentioned. I think so far, we have seen currencies and capital flows being relatively muted in this episode. And I think this speaks to the ongoing theme that we have mentioned for several rounds now, that there's resilienc among the emerging market economies for a whole host of reasons.

However, as Tobias has pointed out, the external environment is not favorable and financial conditions are tightening globally. At this time, we need to worry about, countries where they are seeing sovereign spreads increasing, with large debt maturities forthcoming. Policy can be proactive to head off these risks by, for example, making sure that fiscal sustainability is being sent the right message.

Ms. LOUIS: Thank you, Jason. The gentleman in the first row, at that end.

QUESTION: Thank you. Rotus Oddiri with Arise News.

So theoretically, if the dollar is weakening, isn't that, to some degree, relatively good for countries with dollar debts?

And secondly, how are you seeing fund flows to cash? If there's a lot of volatility, are you seeing more movements to cash? And are there implications there in terms of [M&A] activity and so on and so forth?

Mr. ADRIAN: So let me take this in three parts.

The first question is about sort of like the strength of the dollar and the impact for emerging markets. When we look at exchange rates relative to emerging markets, there's some heterogeneity. The dollar has appreciated against some emerging markets and depreciated against others. But it's not the only impact on those financing conditions. We certainly have seen a notable widening of financing spreads. And that is probably the more important determinant for external financing conditions in emerging markets.

Now, having said that, in some of the larger emerging markets with developed local government bond markets, we have seen some inflows into those local markets, but it's very country‑specific.

Turning to the question of investment decisions. We think that the first‑order impact here is the overall level of uncertainty. So, generally, investment decisions are easier in an environment with certainty. Given that some uncertainty remains about how policies are going to play out going forward, that can be a temporary headwind to investments or merger activity.

Mr. WU: Just to quickly respond to your question about cash. I think during periods where markets are volatile, it's reasonable that market participants and investors demand more liquidity, thereby moving in cash. We have not seen this happening en masse so far during this episode. So, we have seen bank deposits increase a little bit in the United States, but I think the magnitude is significantly smaller compared to previous episodes of stress.

Ms. LOUIS: Thank you. Thank you, Jason. So, the lady here in the second row, with the glasses.

QUESTION: Hi. Szu Chan from the Telegraph.

Do you see any parallels between recent moves in the bond market, particularly in US treasuries, with what happened in the wake of the Liz Truss mini budget? And do you think any lasting damage has been done?

Mr. ADRIAN:

Just for everybody's recollection, in October 2022, there was some turbulence in UK gilt markets when the budget announcements were larger than expected and the Bank of England intervened to stabilize markets at that time. Clearly, we haven't seen interventions by central banks, and the market conditions have been very orderly in recent weeks. There's a repricing relative to the higher level of uncertainty but as I said at the beginning, there is both upside and downside risk. And we could certainly see upside risk if uncertainty is reduced going forward.

And market conditions have been quite orderly. The moves are notable in treasuries, in equities, in exchange rates, but they are within movements we have seen in recent years and really reflect the higher level of volatility.

Mr. Ferreira: I don't think I have much to add to this, Tobias.

I think that what we are seeing is some moves that have not been historically deserved in this kind of situation. But these mostly respond to these higher uncertainties and a repricing to the new macro scenario.

Ms. LOUIS: So, before I go back to the floor, we do have a question on Webex, Pedro da Costa from Market News International. Pedro?

QUESTION: Thank you so much, Meera. Thank you, guys, for doing this.

My question is, given the market concerns about the threat to central bank independence, if the threat were exercised in a greater way, what would be the financial stability implications of a potential firing of either the Fed Chair or Fed Governors?

Ms. LOUIS: Thank you, Pedro. Are there any other questions on central bank independence? I don't see any in the room. So over to you, Tobias 

Mr. ADRIAN: Thanks so much.

So, the International Monetary Fund has been advising central banks for many decades. Helping central banks in terms of governance and monetary policy frameworks is really one of the core missions of the IMF. And we have seen time and time again that central bank independence is an important foundation for central banks to achieve their goals, which are primarily price stability and financial stability. We do advise our membership to, have a degree of independence that is aimed at achieving those overarching goals for monetary policy and financial stability policies.

Ms. LOUIS: Thank you. Thank you, Tobias. The gentleman in the first row.

QUESTION: Thank you so much. My name is Simon Ateba. I am with Today News Africa in Washington, DC.

I want to ask you about AI. It seems that is the big thing now. First, are you worried about AI? And what type of safeguards is the IMF putting in place to make sure that advanced countries—that AI doesn't increase risk?

And maybe, finally, on tariffs. We know that President Trump is imposing tariffs today, removing them tomorrow. China is retaliating. How much will that affect the financial stability of the world? Thank you. 

Mr. ADRIAN: Thanks so much. Let me start with the question on artificial intelligence, and Jason can complement me.

We have done quite a bit of work on that. In October, we actually had a chapter specifically focused on the impact of artificial intelligence on capital market activity, but, of course, the impact of AI is broader. And in our view, there are both risks and opportunities. I think the main opportunity is that it's actually potentially quite inclusive, right?

Everybody that has access to the internet via a smartphone or a computer or a tablet, in principle, can use those very powerful artificial intelligence tools. And we have seen examples in emerging markets and lower‑income economies where entrepreneurs are actually using these new tools to innovate. That can boost productivity around the world.

In financial markets, we do quite a bit of outreach to market participants. And financial institutions—including banks and capital market institutions—are very actively exploring avenues to use artificial intelligence productively. There's a lot of innovation going on. At the moment, we see a lot of that concentrated in back‑office kind of applications, so keeping your house in order in terms of getting processes done. But in trading and in credit decisions, these are also quite promising.

In terms of risks, our primary concerns are cybersecurity risks. Many financial institutions are already under cyber attack., AI can be used to make defenses more efficient, but it can also be used for malicious purposes and making attacks more powerful. So, there's really a bit of a power game on both sides. And we certainly advise many of our members to help them get to a more resilient financial system, relative to those cyber threats.

Mr. WU: Maybe just quickly, to complement.

I would encourage everybody to read Chapter 3 of the October 2024 GFSR, which addresses the issue of artificial intelligence in financial markets. Tobias is right, that there are benefits and risks on both sides.

In addition to cybersecurity, I just wanted to highlight a couple more things, which is that, many of the financial institutions that we spoke to are still at their infancy in terms of deploying AI to make decisions—meaning, for trading or for investment allocation, they are at very early stages. But suppose that this trend rapidly gains? What would happen to risks?

I think I will highlight two. One is concentration. Will it be a situation where the largest firms with the best models tend to win out and, therefore, dominate the marketplace? And then what are the implications for this? The second is that the speed of adjustment in financial markets might be much quicker if everything is based on high‑powered, artificial intelligence-type algorithms.

With regard to these two risks, I think there's great scope for supervisors to gather more information and understand who the key players are and what they are doing. International collaboration obviously is a crucial aspect of this. Market conduct needs to be taken into account, the future possibility that markets will be very much faster and more volatile, perhaps.

Ms. LOUIS: Thank you. The gentleman in the second row, please, in the middle here. Thank you.

QUESTION: Good morning. I am [Fabrice Nodé‑Langlois] from the French newspaper Le Figaro.

I have a question on the US public debt. There is a widespread opinion that whatever the level of the public debt—because of the significant role of the dollar, because of the might of the American military and economic power—it's not a big concern. But under what circumstances, under what financial conditions would the US public debt become a concern for you?

Mr. ADRIAN: Thanks so much for the question. We are certainly watching sovereign debt around the world, including in the US. I do want to point out that there will be a briefing for the Western Hemisphere region that will specifically focus on the Americas, including the United States.

When you look at our last Article IV for the United States, we certainly find that the debt situation is sustainable. You know, The U.S. has many ways to adjust its expenditures and revenues. And we think that this makes the debt levels manageable.

Having said that, as I explained at the beginning, we have seen broadly around the world an increase in debt‑to‑GDP levels, particularly since the start of the pandemic in 2020. And it is an important backdrop in terms of pricing and financial stability. So, we are watching the nexus between sovereign debt and financial intermediaries very carefully.

Mr. Ferreira: Maybe one issue related with that— I think that we flagged it in the GFSR—is that I think there is an anticipation that—not only in the US but in several countries—there will be a lot of issuance of new debt going forward. Particularly in a moment where several central banks are doing some quantitative tightening, this might bring some challenges in terms of the function of the financial sector.

Everything that we are seeing now seems to be working very well, even when we have this kind of shock. This is not a major concern. But going forward, we feel that it's important to continue monitoring market liquidity. There are some flags that have been raised, particularly in terms of broker‑dealers' capacity to continue intermediating and providing liquidity to public debt. It's important to keep monitoring this, as central banks keep going in the direction of quantitative tightening.

Ms. LOUIS: Thank you. Thank you, Caio.

And just to add to Tobias's point, we will have a lot of regional pressers this week. And the Western Hemisphere presser will be on Friday if you have any US‑specific questions. Thank you.

The lady here in the front row.

QUESTION: Thank you. Thank you for taking my question. My name is Nume Ekeghe from This Day newspaper, Nigeria.

The report mentions Nigeria's return to Eurobond markets. And we know it was received positively by investors. So how does Nigeria's return to Eurobond markets signal renewed investor confidence? And what specific macroeconomic reforms or improvements contributed to the shift in sentiments? Thank you.

Mr. WU: Thank you for that question. Let me make some remarks about Nigeria and then sub‑Saharan Africa, in general.

In the case of Nigeria, macroeconomic performance has held up,  GDP growth has been fairly consistent, and inflation has been coming down. Earlier this year, we have seen Nigeria's sovereign credit spreads lowering. I think the reforms that the authorities have done, including the liberalization of exchange rates, has helped in that regard.

That said, I think I want to go back to the theme that Tobias has mentioned, which is that during a time where global financial markets are volatile and risk appetite, in particular, is wavering, this is when we might see increases in sovereign spreads that will challenge the external picture for Nigeria, as well as other frontier economies. So, for example, Nigeria's sovereign spread has increased in recent weeks, as stock markets globally have declined.

The other challenge, of course, is for large commodity exporters, like Nigeria. If trade tensions are going to lead to lower global demand for commodities, this will obviously weigh on the revenue that they will receive. So, I think both of those developments would counsel that authorities remain quite vigilant to these developments and take appropriate policies to counter them.

Ms. LOUIS: Thank you. Thank you, Jason.

And just before I come back to the floor, we have another question online, from Lu Kang, Sina Finance. The question is, in light of the IMF's recent GFSR warning about rising debt, volatile capital flows, and diverging monetary policy paths, how should countries, especially emerging markets, balance financial stability with the imperative to finance climate transitions and digital infrastructure?

Mr. ADRIAN: Thanks so much.

We do a lot of work on debt management with countries. We are providing technical assistance and we are doing a lot of policy work on debt market developments. I think the two main takeaways are, No. 1, the plumbing matters. Putting into place mechanisms such as primary dealers and clearing systems, and pricing mechanisms in government bond markets. It is important all over the world. That includes the most advanced economies, as well as emerging markets. And we have seen tremendous progress in many countries, particularly the major emerging markets in terms of developing those bond markets.

The second key aspect, of course, is fiscal sustainability. Here again, we engage very actively with our membership to make sure that fiscal frameworks are in place that keep debt trajectories on a path that is commensurate with the economic prospects of the countries.

Ms. LOUIS: Thank you. Thank you, Tobias. A question here in the front row, please.

QUESTION: Thank you. Kemi Osukoya with The Africa Bazaar magazine.

I wanted to follow up on the question that my colleague from Nigeria mentioned, regarding sovereign debts. As you know, African nations, after a period of pause, are just right now returning back to the Eurobond. But at the same time, there is unsustainable high borrowing costs that many of these countries face. So, in your recommendation, what can governments do regarding their bond to use it strategically, as well as to make it sustainable?

Mr. ADRIAN: Thanks so much for this question. And you know, we are working very closely with many sub‑Saharan African countries to support the countries either via programs or via policy advice and technical assistance to have a macro environment that is conducive for growth. So let me mention three things.

I think the first one is to recognize that we have been through a period of extraordinarily adverse shocks. Particularly in sub‑Saharan Africa, the pandemic had an outsized impact on many countries. The inflation that ensued was very costly for many countries, particularly for those that are importing commodities. So, the adverse economic shocks have been extraordinary. And I would just note that we have engaged more actively in programs with sub‑Saharan Africa in the past five years than we ever did previously.

The second point is about the financing costs. And, of course, there are two main components. One is the overall level of financial conditions globally. All countries in the world are part of the global capital markets. And that really depends on overall financing conditions. But more specifically, of course, there are country‑specific conditions—the macroeconomic performance of each country, the buffers in the countries—and the mandate of the Fund is very much focused on macro‑financial stability. So, getting back to a place with buffers, which then can lead to lower financing costs is the main goal. Our work with those countries is very much focused on the kind of catalytic role of the Fund, where we are trying to get growth back and stability back. Let me stop here.

Ms. LOUIS: Thank you. Thank you, Tobias. And a question here in the front row, please. And then I will come back to the middle.

QUESTION: Thank you very much. My name is [Shuichiro Takaoka]. I am working for Jiji Press.

Just I would like to make clear the risk of a depreciation of the US dollar. And what are the implications of the recent depreciation of US dollar, especially regarding the global financial stability viewpoint?

Mr. ADRIAN: As I mentioned earlier, we had seen quite a bit of an appreciation of the dollar earlier in the year and late [next] year. And now we have seen a depreciation that is roughly of commensurate magnitude. The volatility in the exchange rates is reflecting the broader volatility. There are some indications that the exchange rate movements are related to flows to investor reallocations, but the magnitudes of those flows are relatively small, relative to the run‑up of inflows into US assets in recent years. The cumulative inflows into bonds and stocks from around the world have been quite pronounced. So, to what extent these movements in the exchange rate and the associated flows are just a temporary or a more permanent impact remains to be seen. It really depends on how the current uncertainty is going to be resolved. As I said at the beginning, there are various scenarios. For the moment, it's highly uncertain. As I said earlier, it is notable that the dollar declined, but I would not jump to conclusions in terms of how permanent that move may be.

Mr. WU: Just to complement. I think when exchange rates are very volatile, one of the key channels for financial stability could be pressures in various funding markets. And this includes in cross currency markets, as well as in repo markets and other secure financing markets. I think this is something that we will be watching very closely. So far, we have not seen any major disruptions in those markets, despite the very volatile exchange rates.

Mr. ADRIAN: So as a comparison, you can think of last August when there was a risk‑off moment. That was very short, but that did lead to dislocations in those cross‑currency funding markets. And we haven't really seen that in recent weeks.

Ms. LOUIS: So just on that line, I think you may have captured it, but I just wanted to get in this question that came in online from Greg Robb from MarketWatch. And it's, have treasuries and the dollar lost their safe haven status? If not, what accounts for their recent performance?

Mr. ADRIAN: So, again, it is somewhat unusual to see the dollar decline in the recent two weeks, really, when equity prices traded down with a negative tone and when longer‑term yields increased. But how lasting that is, is really too early to tell.

US capital markets remain the largest and most liquid capital markets in the world. When you look at US dollars as a reserve asset, that remains over 60 percent among reserve managers. Global stock market capitalizations increased to 55 percent most recently, up from 30 percent in 2010. So, we have seen price movements that are notable; but in the big picture, the depth and size of the markets remain where they have been.

Ms. LOUIS: And just on the same line, of capital markets. We have another question that came in online, [Anthony Rowley] from the South China Morning Post. And he says, both the EU and ASEAN are seeking more actively to promote capital market integration. Do you see this as reducing global dependence on US capital markets to any significant extent in the short to the medium term?

Mr. ADRIAN: We are generally of the view that deep capital markets are beneficial everywhere. So, we are helping countries around the world to get to solid regulations and market mechanisms in sovereign bond markets but also, more broadly, in capital markets. And, for emerging markets and advanced economies, deepening capital markets has been a key priority.

We have seen many firms from around the world come to US markets to issue stocks and bonds. And we think that's related to the depth of the market and the sophistication of the financial sector in the US markets. So, it does provide a service to corporations and financial institutions around the world. But there are certainly many other markets that are deep, that are developing, and that are providing opportunities for both corporations and governments to issue. So, we have seen that trend continue.

Ms. LOUIS: Thank you. Caio?

Mr. Ferreira: Maybe just more broadly on the development of capital markets, as Tobias was saying, I think that it's an important goal. And this has come hand‑in‑hand with the growth of non‑banking financial institutions that we are seeing across the globe. We see this as a potential positive development. You diversify the sources of funding and the credit to the real economy, diversify the risks across a broader set of institutions, this is good for the economy and financial stability.

There are risks that need to be mitigated. We discuss some of them in the GFSR—leverage, interconnectedness between different kinds of institutions. But overall, there are policies created by the standard setters that, if implemented, can mitigate these risks.

Ms. LOUIS: Thank you, Caio and Tobias. 

Going back to the room. There's a lady in the second row.

QUESTION: Hi. Riley Callanan from GZERO Media.

The IMF downgraded the US, the most of all advanced economies. And I was wondering, is this a short‑term hit that in a year could lead to greater growth and investment in the US? Or is this a long‑term downgrade? Or is it too soon to tell, as you said, with capital markets?

Mr. ADRIAN: We are really looking more at the financial stability aspects. And I would just note that there has been a readjustment in expectations. Where the US and other economies are going to end up remains to be seen. But I think what is notable is that with the sharp adjustment in asset prices, the increase in uncertainty has been absorbed well in capital markets. And as Caio alluded to, it is the policy framework around the banking system and the non‑banks that is so important to create resilient and deep financial markets that are then facilitating adjustments, relative to new policy developments. And from that vantage point, I think even though we have seen the level of uncertainty increase, markets have been very orderly. And we think that the regulatory and policy framework is key for that achievement.

Ms. LOUIS: Thank you. Thank you, Tobias.

And if you would like to flesh out any more details on the growth ramifications, we have a conference on Friday. And I can send you the details.

Another question here, in the second row. I will come back to you.

QUESTION: Hi. Gabriela Viana from Galapagos Capital in Brazil.

So, in Brazil, commodities prices play an important role for currency [and] international capital inflows, especially in the stock market. Do you see commodities prices as a main important constraint for markets or the economic policy's uncertainties or maybe the monetary tightening? Thank you.

Mr. WU: All these factors are related to each other, obviously. So, I think the commodity prices, if the WEO forecast were to play out, the global economy is going to be slowing. It's certainly an impact on the revenue side.

I think for many emerging markets, the silver lining here is that they do have policy room. Many of them do have monetary policy room. Some of them have fiscal room, although only a few of them. So, it seems like this is going to be a challenging period, and uncertainty [and] commodity channels are both going to weigh on economies for emerging markets.

We have seen broad‑based resilience among emerging markets over the last few years compared to, let's say, five years before the pandemic. So, I think this speaks to the institutional quality having improved in emerging markets. And hopefully this would continue to buffer emerging markets from these external shocks.

Ms. LOUIS: Thank you. Thank you, Jason.

And the lady in the middle. And then I will come back to Agence France‑Presse.

QUESTION: Hi. Thank you for taking my question. I am Stephanie Stacey from the Financial Times.

I wanted to expand on the previous questions about the dollar and treasuries. And I know you mentioned it's hard to assess at this point how lasting the impact will be. But I wanted to ask what risks and future factors you think could drive a real shift in their safe haven status.

Ms. LOUIS: Before we continue, are there any other questions on the dollar and the safe haven status? Yes. There is a question here.

QUESTION: Hi. Mehreen Khan from The Times. I'm sorry. I will stand up.

You mentioned the importance of swap lines and central banks cooperating at times of market stress. I mean, how much are we taking this type of cooperation for granted? And how much is the idea of the Fed providing swap lines to other central banks now in question, given the nature of the scrutiny that the institution is under from the Trump administration?

Mr. ADRIAN: Let me start with the swap lines.

In previous episodes of distress, such as the COVID-19 shock in 2020 or the global financial crisis in 2008, we have seen that swap lines from the major central banks—including Bank of England, ECB, Bank of Japan, and the Federal Reserve—have played an important role in terms of stabilizing market liquidity. The way to think about that is that the central banks are providing funding to partner central banks in the currency of the foreign assets that those institutions own. So, it's an important underpinning to provide market functioning and resilience to your own assets in the hands of foreign financial institutions.

As we mentioned earlier central banks have not intervened for liquidity purposes in recent weeks. And, despite a heightened market volatility, the VIX, for example, went from below 20 to between 40 and 50, which is fairly elevated. We have seen a very, very smooth market functioning across the board.

Concerning the role of treasuries we are looking at the pricing of longer duration treasuries very carefully. We particularly look at supply factors, demand factors, and technical factors. We have seen volatility in the price moves, but we think that those are within reasonable historical norms.

Mr. WU: Just to complement, I think in the treasury market, we have seen market functioning held up—meaning that buyers can find sellers and transactions are going through. I think that's a very important sign.

One thing that I wanted to mention also is that a year ago in our report, we pointed out that there are leveraged trades in the treasury market. These are trades that have not very much to do with economic fundamentals in the US or elsewhere but, rather, are using leverage to capture arbitrage opportunities in markets. When these trades are unwound, there will be impact in the treasury market. And this is something that we have pointed out before. These include the so‑called treasury cash‑futures basis trade, as well as a swap spread trade, which we have documented before. And I think during this episode, given the very heightened volatility, we have seen evidence of some of these positions being unwound, potentially having an impact on treasury yields as well. So, I just wanted to put this into context. This is not about capital outflows, but it's about unwinding these trades having amplified the recent price movements in treasury markets.

Mr. ADRIAN: We are seeing some indication that there's some lowering in terms of the leverage in these trades, but we haven't heard of disorderly deleveraging at this point. So, of course, with market volatility increasing, financial institutions naturally reduce their leverage. But we haven't seen the kind of adverse feedback loop that was common, say, in 2008 or even as recent as the COVID-19 shock initially.

Ms. LOUIS: Thank you. Thank you, Tobias.

And there's a question from Agence France‑Presse, in the middle. And then I will come back to you, and you. We are running out of time. So, we will take very, very few questions left.

QUESTION: Thanks for taking my question. Just a quick question. In your report, you talk about geopolitical risk, including the risk of military conflicts. I just wonder how seriously you think people should take that and where you rate that when it comes to the global financial stability risks you have discussed already.

Ms. LOUIS: Thank you. And I have just been told we are running out of time. So, we will just clump those questions, if you could be very quick. The gentleman over there and the lady there. And then we will wrap it up. Thank you.

QUESTION: Hi. [Rafia] from Nigeria. I work on [Arise TV].

The IMF keeps talking about building resilience to face the global challenge of the state of the economy of the world. How do you build resilience in a world economic climate when one man's decision can tip the scale? Just one man. He could wake up tomorrow and all our projections falter. One man.

Ms. LOUIS: Thank you. And then the last question.

QUESTION: Laura Noonan, Bloomberg News. Thanks for taking the question. It's actually a related question.

You spoke in the report about the need for policymakers to try to do what they can to guard against these future financial shocks. Do you have any practical suggestions on what those measures could be? And also, are you expecting people to take measures to make the financial system safer when the overall political mood, as you have seen, has very much been about trying to liberalize things, trying to deregulate, and trying to simplify? Thank you.

Ms. LOUIS: Thank you. Tobias?

Mr. ADRIAN: Let me address the three sets of questions and then turn to my colleagues as well.

On geopolitical risk, we do have a chapter that was released last week that is looking at capital market performance relative to geopolitical risks. And the good news is that, generally, when adverse risks realize, there is an asset price adjustment. But on average, relative to recent decades, those risks are absorbed well by the financial system in general. Now, of course, when conflicts directly impact countries, that can have a pronounced impact on their financial systems, and it's something that we are discussing in more detail in the chapter.

Secondly, in terms of the exposure of countries to physical risk, we have certainly seen in some countries around the world, a heightened incidence of drought and floods, even those can be macro‑critical. To the extent that these developments impact macro stability, we are certainly there to support countries and help them, either via programs or policy frameworks.

Thirdly, in terms of the regulation of financial institutions and financial markets. You know, I think the last couple of weeks are very good illustrations for the importance of resilience of financial institutions. I mean, we have seen a tremendous increase in the level of volatility, which reflects the higher level of uncertainty. Last October, our overarching message in the GFSR was that there was this wedge between policy uncertainty and financial market volatility, which at the time was very low. And we have seen financial market volatility catch up with the high level of policy uncertainty. But that has been orderly, and financial institutions have been resilient. That is really the main objective of financial sector regulation—to get to a place where the financial system can do its job in terms of adjusting to unexpected developments. And when you have resilience in banks and in non‑banks, these adjustments are smooth. And that is the point of finance, right? It's a kind of an insurance mechanism for the global economy and for individual country macro economies. Good regulation leads to good stability. And we have a lot of detail on that in the GFSR.

Mr. Ferreira: Maybe I could add a little bit on this about how to build resilience.

I think that as Tobias was saying, trying to anticipate shocks is very hard. And it is very hard to do it. So, I think the way to build the resilience is focusing on vulnerabilities. In the GFSR, we have mentioned some vulnerabilities that we feel are important at this time. So, the valuations issues that makes the risk of repricing more likely, leveraging in some segments of the financial sector and in the interconnectedness with the banks, and also, of course, rising and high debt in several countries.

How do you build the resilience in the face of these vulnerabilities? We do feel that banks in most countries are actually the cornerstone of the financial sector and so ensuring that they have appropriate levels of capital and liquidity is key. And the international standards do provide the basis for doing that. To address some of the other vulnerabilities, like leveraging an interconnection between different types of institutions, excessive [transformations], maybe.

Finally, I think that on the issue of rising debt, one common theme that we have been talking about is about the need to credibly rebuild fiscal buffers.

Ms. LOUIS: Thank you. Thank you very much. I know we have covered a lot of ground, and I apologize that we could not get to everybody. If you do have any follow‑ups or any questions, please feel free to reach out to me. You can find the report online, and we can also send it to you bilaterally.

Again, thank you very much for coming and thank you for your time. Take care.