LESSONS FROM COVID: A MACROPRUDENTIAL FRAMEWORK FOR THE MARKET-BASED FINANCE SECTOR

Gabriel Makhlouf

Financial Stability Review, 2021, 29-38

Abstract: The shock from Covid-19 – although not originating from the financial system – represents the greatest challenge for the financial system since the global financial crisis (GFC) more than a decade ago. Entering this crisis, the banking sector was in a more resilient place due to reforms since the GFC. But the financial system overall has changed significantly due to an increase in the share of financial intermediation accounted for by parts of the non-bank financial system, in particular by investment funds. The financial dislocations observed at the onset of the Covid-19 shock have highlighted some vulnerabilities in the non-bank sector, and particularly for money market funds and open-ended funds with short redemption periods and exposures to less liquid assets. A key lesson to draw from this shock is the need to develop and operationalise a macroprudential framework for market-based finance. This would be beneficial for the sector as a whole as well as for the stability of the financial system.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:fisrev:2021:24:4

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