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Mr. Manmohan Singh
Nonbanks such as central counterparties (CCPs) are a useful lens to see how regulators view the role of the lender-of-last-resort (LOLR). This paper explores the avenues available when a nonbank failure is likely, specifically by considering the options of keeping CCPs afloat. It is argued that CCPs have, by regulatory fiat, become “too important to fail,” and thus the imperative should be greater loss-sharing by all participants that better align the distribution of risks and rewards of CCPs, the clearing members and derivative end-users. In the context of LOLR, the proposed variation margin gains haircut (VMGH) is discussed as a way of limiting the taxpayer put.
International Monetary Fund. Finance Dept. and International Monetary Fund. Legal Dept.
The Fund’s total net income for FY 2018 is projected at about SDR 0.7 billion, broadly in line with the April 2017 estimate. The projections for total lending income are broadly unchanged. Most sources of lending income are lower, reflecting a lower level of credit outstanding as a result of advance repurchases and delayed disbursements. However, projected commitment fee income is higher following the early cancellation of a large FCL arrangement in November 2017. The paper recommends that GRA net income of SDR 0.7 billion for FY 2018 (excluding projected income of the gold sales profits-funded Endowment Subaccount) be placed to the special and general reserve. After the placement of GRA FY 2018 net income to reserves, precautionary balances are projected to reach SDR 17.4 billion at the end of FY 2018. The paper further proposes to transfer currencies equivalent to the increase in the Fund’s reserves from the GRA to the Investment Account. The paper also revisits options for the allocation of net income between the special and general reserve, and proposes that net income be allocated equally between the special and general reserve. In line with the recent Board discussion of a framework for guiding future payouts from the Endowment Subaccount, the paper presents a detailed proposal, which includes delaying payouts for three years to protect the real value of the Endowment. The paper also recommends that the margin for the rate of charge for the period FY 2019–2020 be kept unchanged at 100 basis points. The margin will again be set under the exceptional circumstances clause, as non-lending income continues to be constrained by the low interest rate environment and lending income will be used to finance a portion of the Fund’s non-lending activities. The projections for FY 2019 and FY 2020 point to a net income position of SDR 0.4 billion and SDR 1 billion, respectively. These projections are subject to considerable uncertainty and are sensitive to a number of assumptions.
International Monetary Fund. Finance Dept.
This paper updates the projections of the Fund’s income position for FY 2022 and FY 2023–2024 and proposes related decisions for the current financial year. The paper also includes a proposed decision to set the margin for the rate of charge for financial years 2023 and 2024.
Mr. Gian M Milesi-Ferretti and Mr. Philip R. Lane
The deterioration in the U.S. net external position in recent years has been much smaller than the extensive net borrowing associated with large current account deficits would have suggested. This paper examines the sources of discrepancies between net borrowing and accumulation of net liabilities for the U.S. economy over the past 25 years. In particular, it highlights and quantifies the role played by net capital gains on the U.S. external portfolio and 'residual adjustments' in explaining this discrepancy. It discusses whether these 'residual adjustments' are likely to be originating from measurement errors in external assets and liabilities, financial flows, or capital gains, and explores the implications of these conjectures for the U.S. financial account and external position.
Mr. Tamon Asonuma, Mr. Said A Bakhache, and Mr. Heiko Hesse
Motivated by the recent increase in domestic banks’ holdings of domestic sovereign debt (i.e., home bias) in the European periphery, this paper analyzes implications of banks’ home bias for the sovereign’s debt sustainability. The main findings, based on a sample of advanced (AM) and emerging market (EM) economies, suggest that home bias generally reduces the cost of borrowing for AMs and EMs when debt levels are moderate to high. A worsening of market sentiments appears to dimish the favorable impact of home bias on cost of borrowing particularly for EMs. In addition, for AMs and EMs, higher home bias is associated with higher debt levels, and less responsive fiscal policy. The findings suggest that home bias indeed matters for debt sustainability: Home bias may provide fiscal breathing space, but delays in fiscal consolidation may actually delay problems until debt reaches dangerously high levels.
International Monetary Fund
This paper seeks to address queries on several operational issues: (i) the robustness of the indicative thresholds; (ii) modalities for implementing DSAs; and (iii) operational implications for the Fund, Bank, and other international financial institutions and creditors.
International Monetary Fund. Finance Dept. and International Monetary Fund. Legal Dept.

under Different Allocation Options 5. Projected Precautionary Balances Accumulation 6. EMBIG Spreads: Total Composite and Bottom Quartile TABLES 1. Projected Income and Expenditures—FY 2018 2. Projected Income Sources and Uses—FY 2018–2020 3. Income from the Margin and Reserve Accumulation 4. Long-Term Credit Market and Comparator Spreads 5. Sensitivity Analysis-Effect of Changes in Selected Assumptions on FY 2019 Projected Income 6. Recent Burden Sharing Adjustment Rates ANNEXES I. Decisions in Effect Related to the FY 2018 Income

International Monetary Fund. Finance Dept.

of the Margin for the Rate of Charge BOX 1. EA Payout Policy Framework—Key Features FIGURES 1. Summary of Proposed Disposition Decisions 2. EA Asset Value and Retained Investment Income Cushion 3. Reserve Allocation and Net Income Losses, 1958–2021 4. Reserve Composition and Special Reserve as a Percentage of Total Reserves, 1958–2021 5. Projected Reserve Accumulation Under Different Allocation Options 6. Projected Precautionary Balances Accumulation 7. EMBIG Spreads: Total Composite and Bottom Quartile 8. Projected Non-Lending Operational

Mr. Manmohan Singh

to provide additional funds to the CCP in the event of the default of another CM, it establishes a principle of limited liability for CMs that appears to preclude the possibility of uncapped cash calls. Also, under proposed Basel III regulations, bank capital requirements will be hard to calculate if there are uncapped liabilities. 8 In summary, if a CCP loss allocation options allows for targeted haircuts, then, after default by one or more CMs, any jumps or windfall gains (i.e., an increase in in-the-money positions) may not be paid in full. In other words

Mr. Gian M Milesi-Ferretti and Mr. Philip R. Lane

the residuals in portfolio positions to mis-measured flows; mis-measured capital gains for FDI positions; and mis-measured initial positions for the non-portfolio positions of banks and non-banks. 20 In each case, we also discuss alternative re-allocation options and draw out the implications for the estimated rates of capital gain. For foreign portfolio assets and liabilities, the re-allocation of the residual to financial flows is prompted by the resources expended on annual surveys of portfolio positions in recent years, which suggests that positions are