Financial Safety Net Conference

maj. 21, 2015

On May 18 – 20 the Swedish National Debt Office, the Riksbank, the Swedish Financial Supervisory Authority, SIFR and Regeringskansliet jointly organized a conference about the Financial Safety Net. 230 academics, policy makers and practitioners came together to discuss resolution planning and crisis management.

The first session with the topic “Financial crises in perspective” included Anders Borg, Martin Hellwig from the Max-Planck Institute for Research on Collective Goods and Lars Frisell, Advisor to the Governor of the Central Bank of Ireland.

Anders Borg focused on lessons from past experiences and their implications for the design of the current framework for financial stability. He argued, for example, that fiscal policy should go beyond the short term perspective and include longer term spending such as infrastructure investment.

Martin Hellwig discussed the fact that the 2007 – 2008 crisis was different from previous crises in many aspects, for example the dependence upon money market funds as a source of liquidity and exposure to derivatives. He also addressed the fact that current policy initiatives aren’t taking these fundamental problems into account and urged policy makers to deal with issues, as the next crisis will come for sure.

During the third session titled “Bank resolution – case studies”, David Ereira, partner at Linklaters London, Pedro Duarte Neves, ViceGovernor Banco de Portugal and Ceyla Pazarbasioglu, Deputy Director in the Monetary and Capital Markets Department of the IMF gave some examples of previous cases of bank resolutions. They talked about the Lehman Brothers experience, the resolution of Banco Espirito Santo and the policy choices in the most recent crisis compared to historical crises.

Ceyla Pazarbasioglu introduced the three phases of crisis management. The first phase is to contain by measures such as providing liquidity to solvent institutions. In the second phase, balance sheets need to be restructured via recapitalization and in the thirds phase one has to deal with legacy assets. She also stressed the importance of early recognition of lending losses to prevent further deterioration of the situation.