Past experience shows that extensive credit rating downgrades in the corporate sector can generate adverse second-round effects that exacerbate crises. A recent study by the European Systemic Risk Board (ESRB) illustrates how important this vulnerability may be. Specifically it is estimated that investment funds and insurance companies hold the bulk of BBB rated corporate debt holdings, one-third of which are associated with sectors considered to be pandemic-sensitive. A large-scale downgrading of this debt to below investment-grade status would entail considerable potential losses for the entire European Union (EU) financial system. Credit rating agencies play a fundamental role in this process. Accordingly, when making their assessments, they need to take into account the long-term outlook for the corporations concerned and avoid excessively procyclical behaviour. Indeed, this time round, credit rating agencies appear to have been more cautious than in the global financial crisis and, to date, there has been no recurrence of incidents comparable to those seen in the past. In any event, the results of this exercise show the systemic importance of this vulnerability and the need to be ready to provide a sufficient, internationally coordinated response, depending on how the pandemic develops worldwide. Turning now to the real estate market, this sector’s starting point was unquestionably less vulnerable than in the previous crisis, after a very significant correction both in housing investment and house prices in the past decade and with a much lower share of highlyleveraged new mortgage origination since 2008.

What has happened in Britain over the past few years has been that the impossibility of obtaining longevity risk insurance has been a contributory factor to the sharp decline in private sector provision of defined benefit pensions. Over the past ten years, membership of private sector defined benefit pension schemes that are still open is estimated to have fallen by 60% (Pensions Commission, 2004). It is not clear why the market has not developed an annuity or pension product indexed to aggregate longevity which would allow financial institutions to pass the collective longevity risk onto the policyholders. What is clear is that individuals have now been asked to take on more and more risk because the absence of annuities means that they now bear both individual and collective aspects of longevity risk. There is something to be said for the view that longevity risk is more efficiently shared collectively, leaving the private sector to provide insurance against individual mortality. The question of who should issue and who would buy longevity bonds merits further study.25 I have so far discussed only longevity risk. Clearly, any discussion of pension reform must include also the other key collective risks: to productivity, rates of return and fertility among others. We do not, of course, start with a clean slate. Existing government institutions - whether by design or default already have important risksharing properties. Means-tested pensions and other benefits, as well as the National Health Service, already give the government a major role in the sharing of risks.