 I'd like to remind all of our participants that they have until eight a.m. Central European time tomorrow to vote for their favourite young economists paper. The pandemic has had a fundamental impact on corporate balance sheets with businesses taking on a whole load more debt. Weaknesses in insolvency frameworks meanwhile have raised the possibility of creating more zombie firms where businesses survive even though they're unproductive. A reckoning is due but we still need to address whether despite a corporate debt overhang capital will move to more productive activity. Our next panel will cover this topic. Briefly some housekeeping. Participants can ask questions by raising their hand via Zoom. I'd now like to introduce our session chair, European Central Bank Vice-President Lewis de Gindos. Mr de Gindos, the floor is yours. Thank you very much, Clair. Good afternoon everyone. Let's move to the first presentation of today's session that is going to deal as Clair has indicated with an important legacy of the pandemic. Corporate indebtedness, high corporate debt levels and zombie firms. Our first speaker is Victoria Ibashina, professor at the Harvard Business School. Her research expands multiple areas of financial intermediation and corporate credit markets. She will present her paper on corporate insolvency rules and zombie lending. Beyond misaligned bank incentives associated with zombie lending, her work sheds light on the role of insolvency frameworks and restructuring procedures in distinguishing viable for non-viable firms. The research examines how insolvency frameworks affect defaults, the development on private bond markets and lending to zombie firms. Soundhouse keeping first. Victoria Ibashina will present her paper in the next 20 minutes. Simeon Djankov is our first discussant and will have 10 minutes for his intervention before we open the discussion to the audience. Victoria, now the floor is yours. Thank you very much and thank you to our organizers for the opportunity to present this work in this very important forum. This is a joint work with Bob Becker, who is at Stockholm School of Economics and this is based on a research paper. Now let me start first by defining what is zombie lending. So zombie lending is credit to firms that are otherwise insolvent and immediately another definition as due and that is what is insolvency. Because not all restructuring frameworks distinguish between insolvency as the viability of business and insolvency as a financial problem. So let me be very clear. Insolvency is a financial problem. A company can be operationally viable, but have a capital structure that is no longer suitable or sustainable for the firm as a result, for example, of an economic shock. Why do we care about zombie lending? And this is where we have long string of literature that documents that zombie lending through misalocation of scarce capital can stifle competition and therefore lead to slower growth of the economy. And of course, a classic example of that, which is where this literature of zombie lending is born, is Japan's lost decade, where zombie lending is attributed as one of the core factors on the line, the slow growth and slow recovery of Japan. However, since then there have been many examples on a big debate about presence of zombie lending in different contexts and in different countries. And specifically, you can see here a range of literature highlighting this problem for Europe. Now the traditional view of zombie lending puts the problem firmly at the banks. This problem is seen as a misalignment of incentives of the banks. So for example, think about a risk shifting problem. If a bank is facing loss, the less capitalized is the banks, the highest problem, right? So this is a traditional, a gumbling for a surrection approach. An alternative view which appears in the Caballero-Hosian cashier paper is that the bank might have incentives to avoid capital constraints. So again, if a company is insolvent that is on the balance sheet of the bank, a bank might have an incentive to pretend what to sham restructure a company as to avoid the capital constraint and regulatory consequences. Now, is that because the traditional view abstracts from the insolvency problem and because it's seen as only dependent on the bank incentive alignment, a standard policy approach therefore ex ante thinks about higher capitalization of banks and exposed tries to real line incentives of the banks in one extreme, for example, by removing the ailing assets from the bank balance sheet, which should in principle restart the flow of capital. Now, our view is different here. And this is based on the fact that we have clear evidence about the fact about variation at originating across countries in the way insolvency systems work. Now, what we argue is that the insolvency system is actually an intrinsic part of how we think about zombie lending. And to be clear, this is not a alternative explanation. This is an intrinsic part of the problem of zombie. Think about the following. When we talk about zombie as something being tied to the bank incentives, the variation comes from the capitalization of banks from the incentive for banks. The lower the capitalization, the bigger is the problem. However, another intrinsic dimension of this is the loss itself. The bigger is the loss, if the insolvency system is weak, and the loss of restructuring of attempted restructuring is bigger, the highest incentive to pursue zombie lending, right? So these are two dimensions of the same problem. One coming from within the banks, which is how the traditional source of problem. The other is the ones that starts regulating the very beginning of this problem. And that is the potential loss. Now, before I get into the data, and ultimately, I want to show you some results. I want to emphasize the big picture here. And beyond our studies, there are three ways to think about why insolvency, thinking about insolvency systems and resolution systems is a macroeconomic issue. Now, first, traditionally, we've been focused on the relationship between insolvency system and growth of debt markets. So the classical view being that a system that protects, protecting creditors, friendly to creditors, facilitates restructuring will have a bigger debt market development. Of course, bigger debt market development in turn leads to higher credit availability and higher growth. So you can see how this original view, which is very important, is focusing on the upside, on the upside of developing good insolvency framework. Now, with the COVID shock, we came to realization that actually insolvency systems contribute to the way we think about moments of crisis. And there is a systemic nature of this, of this problem that comes from that is coming from the from the insolvency system itself. So specifically, our original conversation about how we solve the insolvency systems might contribute, amplification of the shock such as COVID was focused on the problem of not being able to handle volumes of resolutions. So that was one one point, because before we had confidence in the stimulus working, there was a concern that we might face a large wave of insolvencies. And because systems are not the existing system are not suited to handle those volumes, this could have led to one channel that amplifies the economic shock. Similarly, part of the problem was that the systems that we have in place are not suited, not do not treat equally large firms and small firms. For the most part, we have, we have systems that treat all the firms the same. And we know that in the data we observe small firm liquidation bias. So this was another concern that was raised. There were several interesting papers that were written around it. I myself participated in this debate by co directing a report for the G30 for G30, where the emphasized insolvency as one of the four actionable points. Now today is very, what I want to talk about is very different. And this is what I wanted to emphasize. Today is about also about the systemicness, the macroeconomic nature of addressing the insolvency framework problems. But that is coming from the fact that weak insolvency system amplifies zombie lending. And zombie lending is a mechanism, important mechanism that spills over negative shocks into the long term growth. So that is another reason why we want to think about this, this issue, because it's a different way of amplifying negative economic shocks on it's something that that broadens, broadens it over the second. Now, as I said, as I promised, this will bring you some results. And so let me introduce the data. We will be looking at cross country setting. To do so, we need a cross country data. Now, insolvency is not something that moves at a very high frequency, right? So with that, it's also there is also a challenge in that each country has slightly different insolvency system. So we need cross country data that covers a large period of sample. And that will be reasonable, reasonably comparable across countries. Now, one such important effort of creating such data, and there are very few out there. This is one important effort in out there to to standardize comparison insolvency system across country. East was led by my discussant, Simeon Jankov, Oliver Hart, Carly McLeish, and Andres Schleifer. And it became part of the World Bank doing business survey. So that it provides a set of measures that are comparable across countries. It did not escape me that in the recent period, World Bank survey came under some scrutiny. It was the best of my knowledge, not all parts of the survey, the pressure, and specifically what's important for today's conversation, which a measure of insolvency appear to be a reliable measures. And in any case, some of them, it's the best we can do in terms of data. Now, the caveat is that it's a it is a catch all approach to create this wide database of measures that are comparable across countries. What the authors of this effort cleverly did is that they designed the hypothetical scenario, a hypothetical scenario that would be a fictional company that would be meaningful in any country. And then using this fictional company and a fictional distress, they asked surveyed experts and restructuring this different countries, which allowed them to create this difference course. Now, of course, to create this hypothetical countries that that people can relate to in any country, it has to be simple, right? And so not surprisingly, we're thinking about the company, the simple company operating in one country, it has a real estate asset, and it has only one type of debt, which is a bank debt, and it's asset back that that is backed by the real estate. Of course, the world is more complex than that. So as we start thinking about firms that work, that have international presence, firms that use more than one layer of that firms that use unsecured debt, all of that kind of outside of the of the survey. However, here is an important observation. This measure in its simplicity does provide us the ceiling of how good you are. Because if a country scores low on insolvency measures in this very simple example, chances that all of a sudden, this insolvency system would be very good at resolving something more complex, are very low. So in a way, this measure providing us the ceiling of how good you could be. But but we have to acknowledge that it is not a perfect measure. So what exactly we're going to use? We're going to use a period from 2004 to 2020. 2004 is when this survey starts, you're going to look at four different measures. There are the first two are the relevant dimensions that compose scores, the range between zero and 100. The first is primary, I'm going to skip the details of the exact definitions, you can see them in front of you. But the first one primarily focus on the outcome. Although it's not as simple as just recovery rate, but it's a recovery rate score that thinks about the outcome for the creditors. The second one, the strength of insolvency framework score, which also ranges between zero and 100 is focused on the process on the restructuring process. The third measure on this list is will be simple average between the two above. As to the individual components, this is why it gets tricky, because the scenario is so simplified, it's very hard to become very concrete about the dimensions that are going to this composite scores, right? But one such simple variable is a resolution time. Because times that it takes to, for example, to be in bankruptcy, it's very clear. Three months is much better than two years. And by the way, two years is, for example, an average resolution in the United States. Here's practical things that will be important for you to remember. The first three measures, the higher the score, the better is the insolvency resolution system. The last one, the resolution time, the longer you are in the resolution, the worst is the insolvency system, right? So the first three are aligned in terms of sign, the last one goes in the opposite direction. So let's look at the countries in our sample. And here I'm taking two snapshots, 2004 through 2020. You can see that we include US, but for the most part, our sample is composed of firms, European countries. What do we see on this picture? Well, first of all, as I said, there's quite a bit of heterogeneity. Second, we can see that there has been significant change from 2004 through 2020. Even in 2020, we observed some heterogeneity, but we do should acknowledge that there's been some improvement. And some of you might be phrasing the following criticism. So how significant is when you go, when you already say at 80, in scores at maxes at 100, right? So how significant it is that one, when you're at 80, you prove to 85. Of course, if the score was below 50, and then you moved to 70, well, that seems like a significant change. But once we're already leveling out in this high numbers, how significant this additional changes are? This is a fair criticism. And the good news is that we actually have a window into that. And the windows that we're looking going to look at is development of private debt markets. That is a market that develop actually in the recent decades. It's a little bit more first indices of this in the industry appear around 2008, the first movers in the private debt space. And this is non bank private debt space appear around 2008. But the industry's private debt market really takes off post 2012. So in the much later period of sample, period of our sample, and it goes essentially from zero to approaching a trillion dollar industry globally. So quite significant growth and quite significant volume. So what is this private debt market? And so first, as I already said, it develops exactly in the times that we look at. So we can we can, we can test our measures that they're looking at the measure, some insolvency, thinking relating them to the development of private debt market. They typically close that funds. What does it mean? Think about private equity, private equity has closed and funds. And so does private debt. They lend across the spectrum of firms and they prefer riskier end of the firms. So mid cap or distress companies. So between the fact that their vehicles for which they invest have a finite life and between the fact that they are pursuing riskier companies, insolvency systems, insolvency framework is extremely important to them, because they will be more active users of this. Furthermore, this is a highly sophisticated creditors that actively customizing the structures, debt structures. And so between expertise, flexible institutional mandate, low coordination cost, because this is not widely held that all of that points out that they are well, but they need insolvency frameworks to be able to restructure and their well positioned to do so. There is really little few things that can stop them. So this kind of puts firmly the weight on the on the rules on the framework itself. So what are we going to look at? We're going to look at how private debt markets grow in the countries with lower insolvencies costs. Even so, if we are already in the range that doesn't make a difference, we should have seen private debt picking up significantly in all of them. And yet, what we're going to see is actually, that there is tremendous difference in our sample between in this constrained sample of mostly European countries on us of development of the private debt market, and the scores, this naive scores, if you wish, constructed through the survey. So what this points to us is the fact that this is actually very meaningful. And even meaningful in looking at the simple correlations, they can they can quickly point to us where private debt market is in the most recent period going to grow and very not. And what we're looking at that here, so four columns, four measures, the first five four going to have the same sign, higher positive means better system, the last one, smaller number, negative means better system. And this is what you see. And the difference is tremendous. The number of deals we are looking at the vary, the variable is the number of transactions. And these are very, very significant economic numbers. So this is kind of a way of validating and making sense that these measures that we're looking at are actually quite meaningful. Now let's shift to the zombie landing. And I want to show you two results. So the first result that I want to look at is an aggregate results. And the idea is that well, insolvency systems facilitate resolutions. It's kind of a resource, if you cannot arrive to private resolution, you can use this formal resolution, right? And so we're going to look at the growth in bankruptcy rates. Again, of course, very complex to work with bankruptcies and how to make them comparable comparable across countries. And all of that is actually in the papers that backs this presentation. But let's focus on the fact that we're looking at the growth spikes, spikes in bankruptcies. And our hypothesis is that if insolvency system is good, it will be used. In other words, as we enter into negative as we face negative shocks, in countries with better insolvencies, you should observe spikes in use of bankruptcy formal resolution systems. So the last four columns correspond to our four variables. And again, three positive sign followed by the negative sign, the first two columns are just the fact that when the economy is not doing well, bankruptcies should go up. That's just a general intuition and just showing you that that works. But our focus is on the bad times. Why? Because we are trying to pick insolvency. So we are trying to look in context where there is an economic shock, which is what more likely to lead to insolvency. And so what we're seeing here is that you will find that once again, if the insolvency system is better, then it will be more used in bad times. And countries with better insolvencies actually face higher volumes of restructuring, as they should, because absence of restructuring is actually what is called zombie. Now, the second set of results that I wanted to show you go at the very granular level, because you could say to me that well, wait a second, if you said that the insolvency system, quality of insolvency system ties to the to the quality of the credit market, then there are significant compositional effects in what type of firms are using that to start this. So to deal with that problem, we can go to the firm level, where we can start controlling for things like firm size, firm leverage, the type of credit. Now, now we have need to actually measure that specific to the firm, is a firm a zombie, or it is not. Traditionally, this has been measured by trying to detect a credit that seems suspiciously cheap. And here I'm explaining to you that the corner defined suspiciously cheap, as it triple A rated, well, like three, oh, I'm sorry, like double A rated quality for a credit. So this is why we're going to trace the line. And the impose a couple more filters that you can see in the paper itself, that kind of makes it even more conservative. Right. But the idea is that this is really high quality credit. So what do we look at now? So this will be our dependent variable shifts to simple variable if it's a one, if you get a cheap credit, cheap credit being defined, that it costs the interest rate on your loan is as low as if you would be double A rated company or better. Okay. So this is the result that we see for columns for measures. The bottom of it, as the controls. Now we shifted to the firm level. The bottom of it shows us that we can control for loan characteristics, such as loan amount, loan maturity, the type of the loan, you can control assets as the size of the firm, we can control for leverage and several other things. Now, the coefficients here are fun to interpret. Because first, they because our dependent variable is actually an indicator for whether credit is cheap, we actually should get positive coefficient. If this in measure of insolvency is good, if the insolvency system is good. Why is that? Well, this is a traditional standard result, right? That says that if credit protection is good, even the insolvency system is good, then the credit availability will be higher. That's nothing new about that. The coefficients that we are interested in actually the ones that extracts again with stress years. And the point here is that we observe more, more cheap credit in countries with weak insolvency regimes during the economic crisis. So once again, the result here is not the fact that better insolvency is associated with cheaper credit. It's the fact that all of a sudden, when the crisis hit countries with weaker insolvency systems as the ones that showing up cheaper credit. And this cannot be mere flight to quality, because here we include controls for the type of the firms. So any compositional effects should be taken out. I'm just going to solidify this final sort that I had in terms of results by showing users graphically. If you look at the green lines, this is a standard result. So we're looking at the insolvency restructuring score on the horizontal line, and we're looking at incidence of cheap credit on the vertical line. And the better than insolvency system, the cheaper is the credit. That's the green line, the positive slope. Our result is the shift from green to blue. It's the fact that in crisis, which was a blue line stands for, there is more cheaper credit in the context of weaker insolvency systems. Let me say a couple of final remarks, but this is a central result for our argument. So the emphasis on the presentation today was to bring the third channel to forefront of why we think why insolvency dealing with insolvency systems is of a macroeconomic importance. And the focus was that insolvency is at the heart of the zone the problem. And therefore, if you care about zombie, which we do, because this is an important mechanism for translating negative shocks into long term effects, then we have to deal not only with banks and incentives, which is an important point. But that in the long cannot solve the problem, we have to deal with insolvency systems. Now, the other point is that if you agree with me, then really, this is no longer a problem of banks alone, because insolvency systems affect all type of creditors and not just banks. And in the context where insurance companies are important planters, in the context where private debt market is growing, in the context where lots of bank credit is actually originated to distribute because it's syndicated, it's originated by banks, but it's channeling money from many providers of capital. That means that measuring and thinking about zombie lending no longer just should be done through the bank channel, it applies to all creditors, and we cannot assert that zombie lending is not there by only looking on one group of creditors. One final remark is relates to the fact that we've been focusing I've been talking about formal resolution systems, which are very important, but equally important are private resolutions. Formal resolutions set the flow for efficiency of restructuring. Private resolutions improve upon that, they're interdependent. Now, how much more private resolutions come improved upon upon the formal formal systems depends upon the expertise. And building that expertise is heavily dependent on the scale, because for specialists and restructurings for investors and restructurings to build that expertise, they have to be able to spread that cost, fixed cost of investing in that expertise over a bigger base, which points out to, as we think about reforming and solving systems. Similarly, in the ways that we think about banking regulation, there is the benefit of thinking of converging to a set of standardized procedures, because this will facilitate flow of capital into the clever private solutions over structure. Thank you so much. Thank you very much, Victoria. You have exceeded a little bit your time limit by eight minutes, not bad. No problem, no problem. I think that it has been worthwhile. And, you know, it's quite obvious the relevance and importance of insolvency regimes. So, without further delay, let's let me now turn to our discussant, Simeon Djankov. Simeon is policy director of the LSE financial markets group. Prior to join the institute, Simeon was deputy prime minister and minister of finance of Bulgaria. After 17 years holding a managerial positions at the World Bank, where he worked on enterprise of structuring and regulatory reforms around the world. So, Simeon, you have 10 minutes. I hope that you will adjust perfectly to the time limitation that we have set. And now the floor is yours. Simeon. Thank you very much, Luis. I will adjust. This research, new research that Victoria just showed us is very timely. And also very interesting because it, for the first time that I see in this research field, it attempts to answer a micro question and a macro question. The micro question is on the mind of many policy makers, as well as academics, which is, should we worry about zombie lending, zombie firms after the COVID crisis, but more generally after financial crisis? And the macro question, where Victoria's research, I think is pathbreaking, is to what extent do insolvency regimes become or can they become part of the macroeconomic recovery solution? And I think this question is very new. Much of the literature has been at the micro level. So let me quickly address these two questions and the evidence, the new evidence that Victoria has provided. First, as I mentioned, many people, both policy makers as well as researchers do worry about zombie lending, zombie firms after the COVID crisis. Since we have seen the numbers, Victoria alerted to us to some of them, which is that in the last year, year and a half from the onset of COVID, we have actually somewhat paradoxically seen the number of bankruptcy cases, bankruptcy filings, going down rather than going up after the crisis. So in particular, for example, the annualized 2020 numbers relative to 2019 numbers for the European Union are about 20%, 21% reduction in bankruptcy filings relative to the previous year. And we also have the half year 2021 numbers, which show a further 10 percentage points reduction in bankruptcy filings on an annual basis. So in other words, relative to where we were before the COVID crisis, we see about a third less bankruptcy filings than we did before. So some, some people point to this and say, see, this is an evidence that there are many zombie firms around. My view, also expressed in some of the recent research that we've done is that this is rather evidence for the success of COVID recovery measures that the different governments in the Euro area, in European Union more generally have managed to implement. So in other words, for job support programs, for programs for the support of particular industries, for the support for credit for particular types of firms, European governments have managed and European Central Bank, European institutions have managed to support a lot of firms and give them if you like a lifeline for this difficult, difficult period. And then the question arises, but is this a good thing because it keeps company value intact? It keeps supply chains operating? It keeps company human capital intact? Or is this a bad thing because it creates the possibility for zombie firms? So here's the first question. And I think the research that we just saw by Victoria has a good answer, which is in countries or in jurisdictions where the insolvency laws operate, particularly through reorganization, keeping firms alive and reorganizing their operations, we should worry less about zombie firms. And hence, the focus should be on achieving this level of good reorganization outcomes so that we don't worry in future crisis about zombification. A lot of the evidence that Victoria showed us and a lot more evidence in the paper points convincingly to this result. I'll repeat again, at the micro level, we should worry less about zombification in countries with good insolvency regimes targeted at the reorganization of companies. This is the first question. The second question, I think much, much more of a big picture, as Victoria mentioned, is to what extent can insolvency regimes be part of a macro solution, the economic recovery solution? And here she showed some evidence at the company level as well as at the industry level. But we also have evidence from a number of European countries that throughout the COVID period have reorganized or restructured if you like the insolvency regimes. Examples are Germany, the United Kingdom, Belgium, the Netherlands, who over the past 15 to 18 months have revised the insolvency regimes precisely in the direction that Victoria mentioned to us and showed us in many of her tables. And the direction is, broadly speaking, making insolvency regimes more data friendly. So in the past Europe was known for having insolvency regimes that favor the creditors, the banks. And the countries that I mentioned, plus a few other European countries like Poland, like Hungary, have reorganized in the last year, year and a half their insolvency regimes in three directions. And I'll mention them briefly. So the first direction is to make it possible for the company, for the management of the company to reorganize without a judge, without a court, basically having an out of court process that then a judge can just see and say, yes, I agree with this, with this process go ahead. So that saves time, saves, saves money. The second feature is that now if the majority of creditors can agree on a reorganization plan, then the other creditors have to go with this plan. So this is the nature of the German change, the Dutch change, and some of the other improvements in insolvency regimes. And the final one, which is very specific to the COVID period, is to say, as long as a company is paying its suppliers, they need to keep bringing these supplies, even if the company is working out a mechanism for paying banks. So in other words, as long as you're paying your suppliers on time, they have to keep giving you the supplies that you need to remain operational. These three features of improved insolvency regimes go very much along the lines of what Victoria showed us, good reorganization processes are. And again, point to this macro solution, insolvency being part of the macro solution. I'll finish with one comment on European white efforts. I mentioned a number of countries that are doing significant progress at the European Union level. They have been some attempts, for example, the restructuring and insolvency directive of 2019. But there, the progress is much, much less impressive. In other words, about 85% of countries of the European Union countries, when it came time to adopt this directive said, please give us another year to July 2022. So I can say that a lot more can be done at the European wide level to improve insolvency regimes. In conclusion, I would like to say that this research points to two important answers, one at the micro level, don't worry as much as about zone difference, if you have good insolvency regimes, and at the macro level, yes, the organization regimes can be a significant part of economic recovery. And victorious, and both, I should say, research point to which precise features of the organization and insolvency regimes can aid this recovery. Thank you. Thank you very much, Simeon, and you have adjusted perfectly to the 10 minutes. So I don't know whether, Victoria, you want to react to the comments made by Simeon first, before opening the floor to the audience. Please, let me be mindful of the times that I took and just saying Simeon, I think that his discussion was largely complimentary, because I was constrained by the tests. And so I cannot go in a lot of granularity because it becomes not comparable across countries. And I'm very happy that Simeon complimented it in this very nice way by diving into some of the progress that is ongoing. Thank you, Simeon. Thank you very much, Victoria. We are waiting for questions from the audience, but in the meantime, perhaps I would like to ask one question to both of you. When you look at insolvency regimes in Europe, you realize that the recent industrial framework, in the sense that justice ministries and ministers are responsible for insolvency regimes. Sometimes I remember in the discussion that this is a sort of, let's say, limitation in terms of putting forward reforms on the insolvency regimes in the direction that you have mentioned. Do you have any sort of comment with respect to that? Do you think that this kind of division of labor is positive in terms of having reforms in the direction that you have recommended? I don't know who wants Victoria. You go first. I'm happy to jump. I think that's precisely one of the points that comes out of our view. And that is the fact that this is insolvency is at the heart of the issues of traditional macroeconomic channels that relate to the propagation of negative shocks through the cycle. And so, and yes, he absolutely writes that the challenge is that insolvency reforms and insolvency management traditionally had been delegated, seen as a local issue and separated from the functioning of this macro policy effort. So my view is that it ought to be that there is some some integration of the macroeconomic priorities with the functioning of the insolvency systems. Of course, insolvency is extremely specialized processes. And in that sense, I don't think that central bankers quite can take over designing a perfect insolvency system. So we do need those experts and it's a but it should be a joint effort and the standardized effort that that's the view that I think is being supported by our study. Maybe a quick comment by me, Luis, I remember when we're dealing with you with the previous crisis in Europe, the Eurozone crisis of this issue was coming then. Exactly as you said it, I think the research by Victoria points, if you like, the other side of it, which is that finance ministers need to be a lot more active and cognizant of the benefits that you can get from a better reorganization system. I think as you said, traditionally in this division in governments, you kind of say, well, insolvency regime is for our justice minister, let's hope that she does a great job. But finance ministers don't traditionally or ministers of economy worry as much. I think Victoria's research points out we should worry and we should worry about the details not just for it to be efficient in time and cost, but specific features of insolvency. And by the way, some of the proposed directives by the European Commission go exactly in that direction. So hopefully they get adopted soon. These help at the macro level. Thank you. Thank you very much, Simeon and Victoria. And now, you know, we have three questions from the audience. The first one is Richard Ports. Afterwards, I have Dan Andrews and Nicholas Brown. Richard, you have the floor. Thank you, race. I'm going to give a very short question. And that is, we've talked about the or the speakers have talked about the macroeconomic dimension of the zombie question, the bankruptcy question and so forth. Is there a macro prudential issue here as well? Are there implications for financial stability considerations that the regulators, the financial stability regulators should be involved with and concerned about? Thank you. Thank you, Richard. Victoria. Please let me jump in. So to reach Richard's question, so from a macro prudential perspective, in absence of this, in absence of incorporating the views that insolvency matters, we would traditionally pursue bank capitalization and resolution exposed realignment of incentive efforts. I think that there is an important point in that this because these two are interconnected because banks incentives of the banks are part of the problem. And by the way, of other creditors as well, because insolvency affects all creditors, right? We can not just push on the capitalization of the banks. Of course, the challenges is that we normally push on the capitalization of the banks for many other reasons. But let's say that zombies are all in worry in the world. If we try to solve this problem by tying the incentives of the bank of making sure that they extra capitalized, yet we are not resolving this problem because we are not dealing with insolvency, then we are probably overdoing it, right? So that's that's the conflict that is there. So current view thinks that the policy predictions are very clear, they're focused on the banks, they go in the directions of being conservative and strict with banks, which of course has the downside of tying up lending. And what we are saying is that you cannot solve that problem. And this exclusively with that, and you can overdo over tighten it on the side of the banks without achieving the results that you want. So that would be my view to Richard's question. Thank you, Victoria. I don't know whether Simeon, do you want to add anything? Okay, so you know, we have two other, two other, you know, people who have raised their virtual hand. Dan Andrews. And afterwards, Nicolas Veron. Dan, you have the floor. Okay, thanks very much. So two comments. First of all, I mean, I completely buy the line that, you know, the structural features of insolvency regimes have first order implications for for the survival of zombie firms. Indeed, this was a finding in an OECD study back in 2017. And what we also found there was it wasn't just the share of zombie firms or the likelihood that a zombie survives. But insolvency regimes also conditioned the share of industry resources sunk in a zombie firm. And that matters, right? Because one of the main mechanisms through which zombie firms constrain agri-productivity growth is by crowding out resources to more productive firms. So I guess the one question was, you know, is it possible to look at size-weighted measures of these zombie shares as well? The second is to do with the measure of insolvency regimes. So my understanding is that the World Bank measures only look at corporate insolvency regimes. But we know that, you know, there's also big differences across countries in terms of the design of personal insolvency regimes. And that matters, right? Because when an entrepreneur has to sort of secure collateral, they have to often, as funding show, they have, they often have to sort of, you know, post-personal collateral. So that means that a distinction between corporate and personal insolvency regimes are blurred. And more generally, you know, in those countries that tend to have punishing personal insolvency regimes. So for instance, you know, you have to sit in the sidelines for five years if you go broke, you know, that must sort of affect the incentive of these owners to actually recognize, you know, they're in trouble in the first place. So thanks. Thank you, Dan. Victoria. I'll jump in. Yes, for sure. Thank you, Dan, for the question. And also, Dan alluded to his study. And of course, it's, I want to acknowledge the important efforts that Dan and his co-authors did to create a separate set of measures for OECD countries. It's in that particular study that you mentioned, it's, I think that you have a window into a more granular way of dealing with specific measures because you have ability to standardize. And perhaps we should connect and discuss about which of those work and which of those don't. In fact, our way of validating the simple framework, simple measures that the World Bank survey is providing us on insolvency in the context of private debt growth was precisely motivated by this, are we missing something? And this was a shortcut for us to say if you're missing something, then this thing should not correlate in this more recent environment. And yet we see this very pronounced pattern. So I think that there is still a lot to capture from this bigger picture and this high level measures that Simeon and his co-authors worked on. Now, I completely agree on the personal bankruptcy and specifically this interconnect between entrepreneurship, because we do know that a lot of entrepreneurial credit comes with personal guarantees. That's how even most developed markets still are functioning. It's of course, outside of the scope of what we are doing here. But I hope that I take your endorsement of this thought and I take the evidence that you have in your studies. And I hope that the next, yes, you could take this into the context of the personal bankruptcy and thinking about entrepreneurship. And I think that that would be an important direction for a study. Thank you. Simeon, do you want to add anything? Just one quick comment on reallocation of resources done for this point is indeed some of the evidence here looks at the number of funds, the number of zone difference, the size of the issue. But of course, there are measures that can be used and some other papers have used, including Victoria in some of her work on reallocation of resources within sectors and then across sectors. And I think COVID is one of these cases of shocks where we also worry a lot about reallocation of resources across sectors and how the new economy would look like. So this is a very good direction for future research. Thank you. Thank you very much, Simeon. We have time for the last question, Nicolas Veron. Nicolas, you have the floor. I don't know whether Nicolas is connected. Okay. Thank you. It should work now. Do you hear me? Yes, yes, yes. We can hear you. We cannot see you, but we can hear you. But that suffices. I've done my best the rest is with the administration, I think. So thank you very much and a fantastic paper. I think fantastic topics. There has been a lot of attention, obviously, post COVID to this whole zombie problem and many discussions which have caught the attention of policymakers. And therefore my question is kind of framed as an academic question, but I see it as a policy question as much as well. And the caption should read Bruegel and Peterson Institute, but I really want to emphasize the affiliation with both. The question is the following. There has been an explosion of literatures that mentioned zombie firms and users, different definitions of zombie firms as proxies for zombification into the last few years, probably COVID has accelerated that. In my observation, without having done a systematic study, the definition of zombies in that literature is very heterogeneous. I completely agree personally with what Victoria told us in terms of zombie corporates being a financial definition based on so like basically a balance sheet definition, but I think I'm not mistaken that the number of papers have used the PNL definition, which is operational, for example, the persistence of long periods of lack of profitability. So I'd be very curious to know how Professor Vachina sees that and what judgment she has on the emerging literature and zombification, and especially whether it's the definition of zombie firms, that she's adopted in that literature is rigorous enough. Thank you. Yes, thank you, Victoria, please. So at the high level, the natural exercise is very simple. On a mission to catch a subsidy, anything that we can do is where we can say this credit is priced at something that is cheaper than it would be otherwise is the natural exercise. Everything that is out there is actually interrelated. Much of it was guided by simple data constraints, and this is where Japan literature starts. So what they've been looking at is largely driven by what they saw. Now to your specific comment is how do you think about researchers looking at the operational side, the performance of the company? Well, that's just a structural approach to catching a subsidy. This is a way of thinking about, well, if I think about a simple structural model where I can relate performance of the company to the cost of the credit, then anything that is deviation from that is a subsidy. I'm sitting on the side of more, this approach is always harder to pursue and they're a little bit messier. We can use them to triangulate the way we think about what is a subsidy and what is not a subsidy. I do stand with the original literature where objective cheapness and of course the disadvantage of such approach is that by being so conservative you lose a lot of actual zombies, actual subsidies, but nevertheless it's simple and they are clear about what is cheap. We can agree on what's cheap and then if we see cheapness happening in periods of economic shocks that is suspicious. Now one final little comment is of course that objective cheapness doesn't mean that it's universal. Cheapness in the way we would measure it in Japan is different the way we would measure it in the West or in Europe because for example by being bank-centered system there is just not enough AAA companies out there to construct the AAA benchmark that you can construct in other context of markets. So this is where you have to be flexible of where exactly you trace a line and do you have enough observations to construct that line, right? But I don't see those that all of those approaches ultimately trying to hit on a subsidy and I think that complementary. Thank you very much Victoria. I don't know Simeon if you want to add you know a 20-second comment. Thank you. Victoria summarized it very nicely. Thank you very much to both of you. I think that you know the main conclusion is that insolvency regimes matter and matter a lot for the economic performance of the different of the different countries and perhaps you know we have to think that you know they are so important that we cannot let insolvency regimes only in the hands of ministers of justice so that we should have you know a joint effort among economy and finance ministers and justice ministers. So thank you very much for you know the paper great paper. Thank you very much for the fantastic discussions Simeon as well and now you know I turn back to Claire. Thank you Mr Deginas for for getting us off to such a good start. I think it was a great session I certainly learned a lot I just like to draw on two things one was the excellent job that everyone did of explaining why standardization of insolvency regimes is so important. I also thought it was a great point that Victoria made on the enablers of zombification of course this term was popularized by the events in Japan where we saw a lost decade in the 1990s then it was very much about the bank lending channel now as Victoria rightly points out the sources are far more broad so some very important takeaways for our our participants to to gain. We're now going to take a break we're going to be back at 1545 Central European time where we'll be discussing the macroeconomic implications of the corporate debt overhang. Join us again then. Thanks a lot.