Considering the competitive pressures in the markets, behavior of individual entities was quite rational. This is what “search for yield” is all about. Even though risk management at the institution level regarding individual risk factors may have been appropriate, risks were accumulating on a system-wide basis. What is necessary to avoid such accumulation of risks through pro-cyclical behavior?
And after carefully scrutinizing the current crypto eco-system, the Financial Stability Board (FSB) sees legitimate reasons for concern.5 As one of the guardians of financial stability, we believe the rapid growth of these markets in the presence of structural vulnerabilities and incomplete regulation and supervision, mean crypto-asset markets could soon reach a point where they represent a threat to the stability of the global financial system.