Challenges for Financial Sector Policies: Interview with Departing JVI Lead Economist Adam Gersl

After eight years at JVI, Lead Economist Adam Gersl is leaving to become Director of Master Studies in Economics and Finance at the Charles University in Prague, Czech Republic, and consultant for central banks on financial stability and macroprudential policy. At JVI, he has developed and taught courses on financial sector issues, both those offered by the IMF and those organized with partners like the Bank of England, the Banque de France, and the Deutsche Bundesbank. He was also providing technical assistance to central banks around the world, conducted research on financial sector topics, and served as Managing Editor of the JVI Newsletter.

On the occasion of his departure, we asked him to share his experience and his views on both JVI training and challenges for policymakers in his area of expertise.

Adam, you have been the longest-serving JVI economist so far. Can you estimate how many participants you personally have trained?

Over my eight years at JVI, I have been involved in about 70 courses, each with about 30 participants. Many came repeatedly to JVI to keep building their human capital, so I’d estimate I worked with about 2,000 public sector officials, mostly from the JVI region. I stay in contact with many of them, exchanging views on economic and financial developments in their countries even years after they have been at JVI. At each course, we emphasize that creating a network of contacts when participating in the course is as important as listening to the lectures, and I am proud to have such a wide network of personal and professional contacts.

I have also done a few courses at other IMF Regional Training Centers, such as Singapore and Mauritius. This was an eye-opening milestone in my own career as I learned that to a large extent the problems confronting policymakers throughout the world are similar. All policymakers responsible for the financial sector want to maintain financial stability, make sure that banks and other financial institutions are well capitalized and liquid in relation to the risks they face, and be able to use appropriate policies to achieve these objectives.

In the JVI region new financial sector challenges are constantly emerging from, for instance, evolving digitalization, cyber-security issues, new macroprudential regulations, increasing non-bank financial intermediation, or the ramifications of the COVID-19 pandemic. How has the JVI curriculum adapted to this and what trends do you see?

In my experience, the JVI has always taken a flexible approach in tackling new policy challenges. We have moved swiftly to offer courses on such highly topical issues as macroprudential policies, bank supervision, real estate analysis, nonperforming loans, and more recently FinTech. To respond to the economic issues arising from COVID-19 pandemic, we have launched a series of webinars to discuss emerging risks and policy responses and delivered a number of courses virtually, all emphasizing how to deal with such a severe shock.

Looking ahead, I see two main challenges for policymakers overseeing the financial sector: First, the COVID-19 pandemic has shown that we should pay as much attention to possible exogeneous risks as to endogenous risks. Over the past 10 years or so, since the Global Financial Crisis, we have been stressing the need to understand the endogeneity of risk evolution within the financial system: how systemic risk accumulates in upturn phases of a financial cycle and materializes during the financial downturns. This was necessary, as the dynamics of the cyclical evolution of risks has been underestimated before. However, we should not forget that risks may also come from outside, due to economic, geopolitical, or nature-related shocks not directly linked to any macro-financial developments. In a way, we’re returning to the original definition of financial stability in terms of the financial sector being resilient to shocks regardless of where they may be coming from. It’s inherently difficult to forecast such shocks, but as the world seems to have become more volatile over the past two decades, the financial sector needs to be made much more resilient than we originally thought to adverse economic developments. Thus, when conducting stress tests to assess the health of financial institutions, some of the stress scenarios should always capture deep and protracted economic recessions and unusual but plausible shocks, such as natural disasters.

Second, in recent years financial regulation has become very complex, especially in the EU which serves as a role model for most JVI countries. It is an enormous challenge for policymakers to keep up with the increased regulatory burden. Even in such relatively new areas as macroprudential policy, the complexity is expanding rapidly. For example, we now have five to seven different capital buffers to cover what are essentially the same risks. I think the time has come to simplify financial regulation and conduct financial sector policies in a way that preserves the benefits but reduces the costs for both the industry and policymakers.

Finally, as a seasoned instructor with flawless participant ratings, what best practices can you share on how to train public officials?

I have to admit that I was often (of course positively!) surprised by participants rating my lectures and workshops so high. Looking back, I think there are probably three reasons for it.

First, I always focused the lecture and the workshop on practical issues and hands-on guidance so that most participants could immediately use what they were learning in their daily work. When lecturing, I emphasized the practical aspects of the material and how different countries used it, sharing both best cases from the literature and also my own experience from technical assistance missions, country visits, and my previous work at the Czech Central Bank.

Second, I tried to put myself in their shoes, asking myself both what they might be interested in and what could realistically be covered in the dedicated time slot. Because making the lecture and workshop practical requires going into the details (so that it can be used later in their countries and on their data), I followed the “less is more” principle, choosing to spend time making sure they understand how a single approach really works. That meant often giving them small quizzes or opening up discussions with the group, rather than offering a helicopter view on what could be done.

Finally, I believe that creating strong personal bonds between the lecturer and participants helps the learning process. I always socialized and mingled with all participants, never skipping organized social events such as the welcome reception and final course dinner, and often going beyond that by having an after-dinner drink or two with them. While chatting about all kind of things on such occasions, sooner or later the conversation turned to economic developments and policy challenges in their countries. As a result, besides getting a lot of new friends, I also learned a lot about the region that I could use in courses as country examples.

Thank you, Adam, for your answers! On behalf of the JVI team, we wish you all the best in your future career!

Barbara Dutzler, Senior Economist, JVI, and new JVI Newsletter Managing Editor