Liquidity, leverage and macro risk

Presentation on the BIS Annual Report by Mr Hyun Song Shin, Economic Adviser and Head of Research, on the occasion of the Bank's Annual General Meeting, Basel, 26 June 2016.

The realignment of the global economy has been most evident in the large adjustments of exchange rates. The Annual Report examines how these exchange rate adjustments have been both a symptom of and a catalyst for recent events. Apparently disparate issues, such as market liquidity, currency market anomalies and the risk-taking capacity of financial intermediaries, can be understood better by reference to a few common themes, especially the role of accumulated stocks in accentuating the impact of shocks. Our findings reinforce the macroeconomic rationale for prudential policy. A better capitalised financial sector is conducive not only to greater resilience of the financial system, but also to greater risk-taking capacity in support of more liquid financial markets and better macro outcomes.