This produces efficiency gains but it also means that financial institutions in the new environment have less of a buffer of protected profits and are therefore more vulnerable to distress caused by either mismanagement or misfortune. •  Derivatives bring new risks in that they can expose financial institutions to greater leverage, thereby allowing for shocks to be amplified.
In addition, they increase the linkages between national financial markets, which means that adverse events are quickly transmitted from one market to another. •  Furthermore, market participants can now react very rapidly to a problem in a particular country, or even a perceived problem. Capital can move rapidly and in large volumes.