Understanding the past to safeguard the future Minouche Shqfik

摘要

The episodes of volatility in financial markets that we have seen over the past year or so have thus far been relatively short-lived. This is true of the flash rally in US Treasury markets, the tantrum in German bund markets, the surge in the Swiss franc, and the importing of equity market turbulence from China. In each case, governments, banks and businesses regained access to markets after only temporary interruptions and continued to raise the capital they need to drive economic growth. But the coming years will likely provide bigger tests of the resilience of financial markets. Three of the forces that have been dominant since the financial crisis -accommodative monetary policy, private sector inflows to emerging markets, and official sector outflows in the opposite direction - seem set to change. If those 'tectonic shifts' trigger a broader rush for the exit in widely held positions, there is a risk that a prolonged period of volatility could trigger a severe reduction in market liquidity and ultimately a loss of confidence in the ability of markets to contribute to sustainable growth. To ensure this does not happen, it is vital to understand the dramatic changes that have taken place to market structures since the financial crisis. Banks' ability and willingness to put capital at risk in order to make markets has reduced, while electronification has facilitated a rapid increase in the market share of firms who hold positions for only brief periods on the basis of automated trading strategies. At the same time, the ecosystem of markets has become more diverse as the range of platforms over which trades can take place has increased.