Furthermore, the strong growth in the hedge fund sector has been one manifestation of the “shadow banking system” that has contributed to the overall high leverage and the vulnerability of the global financial system. Hedge funds are prone to price and liquidity shocks due to their usual combination of leveraged positions and short-term financing.
Movements in financial markets had become disorderly at times, increasing volatility and thus uncertainty. The risk of an overly abrupt and premature withdrawal of vital policy support was corroborated by model-based evidence that suggests that a significant part of the rise in ten-year OIS rates reflected global spillovers (right chart, slide 11).