Three additional factors are playing a role. First, procyclicality in the financial system itself is amplifying the crisis. Second, problematic legacy portfolios have not yet been fully dealt with. Third, the persistent low-interest rate environment continues to harbour potential dangers. The financial system has in-built procyclicality, which is itself amplifying the crisis. Financial markets display a considerable degree of co-movement.
There are high correlations between various asset classes such as equities, commodities and selected currencies (Chart 3). This comes as little surprise if we look at the many possible shock-amplifying factors. Credit conditions such as automatic margins and haircuts on posted collateral can trigger liquidity spirals.