Completing the picture, the U.S. banking system is highly profitable and well-capitalized and has managed credit risk over the latest cycle exceptionally well. Thus, in my view, a deflation that was relatively limited in magnitude and duration would be unlikely to have serious adverse effects on the U.S. financial system.
Concerning the share allocation rule for the IBRD selective capital increase (SCI), we believe ad hoc solutions and arbitrary thresholds should be avoided as much as possible. We agree on the use of unallocated shares – as a one-off measure – to limit extreme cases of under-representation. This will reduce the need for additional SCIs in the future.