CGFS publishes review of financial market events in autumn 1998

Press release  | 
08 October 1999

The BIS is releasing today a report entitled A Review of Financial Market Events in Autumn 1998. Produced by a working group established by the Committee on the Global Financial System (CGFS), the report examines the stressful conditions that took hold of a broad range of financial markets in both developed and developing countries in autumn 1998. To this end, the working group assembled a large dataset on financial prices in a variety of markets, with an emphasis on indicators of credit risk and liquidity. Members of the group also interviewed financial market participants to obtain their assessment of market conditions during the crisis and the response of their institutions to those conditions.

Drawing on the dataset and the interviews, the main text of the report reviews the key events of autumn 1998, and then discusses the underlying mechanisms that seemed to drive these events. The report highlights the withdrawal of market-making institutions from risk-taking in response to perceived increases in counterparty risk and widespread reductions in leveraged positions. It reviews the channels through which these processes fed on themselves and spread from one market to another. While the report refrains from making specific policy recommendations, it does identify issues raised by the crisis. These include: (i) shortcomings in the risk management techniques used by financial institutions, particularly as regards the relationship between credit risk, market price risk and liquidity risk; (ii) the need for greater transparency regarding large exposures in specific markets; and (iii) the need for central banks and other official authorities to improve their monitoring and analysis of financial market developments.

The report is available on the BIS website at

Notes: The Committee on the Global Financial System is a central bank forum established by the Governors of the G10 central banks to monitor and examine broad issues relating to financial markets and systems with a view to elaborating appropriate policy recommendations to support the central banks in the fulfilment of their responsibilities with regard to monetary and financial stability. In carrying out these tasks, the Committee places particular emphasis on assisting the Governors in recognising, analysing and responding to threats to the stability of financial markets and the global financial system.

The working group that prepared the report was chaired by Karen Johnson of the Board of Governors of the US Federal Reserve System. The working group's members are listed in the report.