Financial Markets: Too Many Faultlines?

At the current juncture, the financial system is highly vulnerable to several material and interrelated risks. First, fragilities in sovereign debt markets in the US and Europe are very high. Interest rates on long-maturity bonds have reached levels last seen before the Global Financial Crisis. Key drivers are the elevated issuance by a large number of governments and a changed composition of bond holders away from buy & hold towards a steadily increasing participation of price-sensitive investors. The use of considerable amounts of leverage raises the likelihood of volatility – margin spirals leading to dislocation scenarios. Second, entities from the private credit sector continue to show significant credit risks in their holdings, liquidity mismatch, opacity and interconnectedness with other parts of the financial system. Third, equity valuations in the technology sector are at historical peaks, with a massive level of activity around artificial intelligence-related investments. Recently, technology firms have also entered bond markets on a large scale, further increasing bond supply and thereby linking risks in the technology sector with the already fragile government bond market. Furthermore, also geopolitical events continue to be a potential source of material stress.

Against this background this webinar will discuss the exposure to and evolution of the main risks in the financial system, risk management implications for the private sector and potential policy options for EU and US authorities.

Scientific coordination: Martin Scheicher, Adviser, DG Horizontal Line Supervision of the SSM & SUERF Fellow