It is also unclear whether firms have adequately protected themselves against indirect exposures to the consequences of greater leveraged activity, such as the risk of a sudden global shock to liquidity as I mentioned a moment ago. Firms are still devising methodologies to model such events and incorporate them in stress tests. But ultimately the best safeguard will be adequate capital and liquidity cushions.
3. Implications for financial stability policy  What do these developments mean for financial stability policy? In the new environment, risks seem to be dispersed more widely, but transparency about where risks are located has declined. This reduces the sectoral impact of real and financial shocks, but may also make it harder to anticipate which sectors are vulnerable to a shock.