Natural disasters are a source of economic risks in many countries, especially in smaller and lower-income states, and ex-ante preparedness is needed to manage the risks. The paper discusses sovereign experience with disaster insurance as a key instrument to mitigate the risks; proposes ways to judge the adequacy of insurance; and considers ways to enhance its use by vulnerable countries. The paper especially aims to inform policy decisions on disaster insurance. Through simulations of natural disasters and various insurance options, we find that sovereign decisions on optimal risk transfer involve balancing trade-offs between growth and debt, based on government risk preferences and country risk exposure. The choice of optimal insurance for smaller countries turns out to be more constrained by cost considerations due to their higher exposure, likely resulting in underinsurance; donor grants could help them achieve a more optimal protection. We also find that optimal insurance packages are those that are least costly relative to expected payouts (i.e. have the lowest insurance multiple), which are also the packages that insure less severe (more frequent) disasters.

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Neighbourhood cohesion is a desirable outcome of socially sustainable communities. However, such an outcome is not necessarily associated with suburban master-planned communities. This empirical research measures affective and interactive dimensions of neighbourhood cohesion and their correlations with residents’ perception of neighbourhood uniqueness. Using qualitative and quantitative methods, it considers the physical and social attributes of two suburban neighbourhoods in Calgary to provide an in-depth interpretation of similarities and differences in neighbourhood cohesion. The findings address an important aspect of community planning associated with the attractiveness of semi-gated suburban living in low-density developments embedded in the natural environment. Keywords: neighbourhood cohesion, semi-gated suburb, sense of community, community planning, uniqueness

Probability of default (PD) measures have been widely used in estimating potential losses of, and contagion among, large financial institutions. In a period of financial stress however, the existing methods to compute PDs and generate loss estimates may vary significantly. This paper discusses three issues that should be taken into account in using PD-based methodologies for loss or contagion analyses: (i) the use of "risk-neutral probabilities" vs. "real-world probabilities;" (ii) the divergence between movements in credit and equity markets during periods of financial stress; and (iii) the assumption of stochastic vs. fixed recovery for financial institutions' assets. All three elements have nontrivial implications for providing an accurate estimate of default probabilities and associated losses as inputs for setting policies related to large banks in distress. This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

This paper complements the stocktaking paper of the G-20 responses to the global banking crisis. 1 It reviews the impact of measures to address the global banking crisis in the United States and Europe through mid-2009. It does so from three different perspectives: financial institutions, markets, and stakeholders. The policies addressed immediate pressures on bank liquidity through mid-2009, but profitability of large complex financial institutions worsened, their tangible common equity (TCE) remained at a critical level, and asset quality weakened. In addition, market confidence remained weak, with credit markets highly dependent on official support. Since the measures by governments at end-March (including the G-20 meetings), the business environment in which some banks operate has improved, but a deterioration in the economic environment could impair the fragile recovery by banks.