Over the past decade, the financial industry has made substantial progress in strengthening global market stability and enhancing resilience.
Financial firms have deleveraged significantly and banks have strengthened their capital structure. During this same period, supervisors have dramatically increased requirements designed to create a more robust financial ecosystem. Central bankers have skillfully applied monetary policy tools to mitigate the impact of the crisis while keeping inflation in check. While this delicate balancing act has been successful so far, it has required unprecedented asset purchases and pushed interest rates to historically low levels in large parts of the world - leaving significantly less ammunition to fight another crisis with monetary policy tools.
Despite significant efforts to improve post-crisis resilience, which are covered in the first part of this paper, we have identified additional opportunities to further strengthen financial stability through enhanced system-wide resilience:
- Global financial stability can be further enhanced by expanding central clearing for both cash and derivatives markets;
- Increased regulatory harmonisation and cooperation among all stakeholders is required to harness the full potential of derivatives trade repositories as early warning signals for the buildup of systemic risk;
- The use of legal entity identifiers (LEIs) in regulatory reporting should be mandated globally to increase risk transparency; and
- Enterprise data management capabilities should become foundational to financial firms' risk management frameworks.
While many aspects of financial resilience have markedly improved since 2008, multiple new challenges have emerged during this period with respect to the macroeconomic environment, market-related risks and concerns related to technology. These new challenges, which have transformed the risk landscape over the last decade and which are briefly summarised below, are covered in part two of the paper, released the following week.