In a more broad-based market downturn, though, we would be concerned that a repricing of financial assets could trigger sudden and large redemptions from these funds, possibly resulting in forced asset sales, which could amplify stress in less liquid markets. This would have wider implications in the form of impaired market liquidity and possible spillovers to the real economy. While leverage in the euro area fund sector is low on average, there are also pockets of high leverage among some types of alternative funds, and these need to be monitored closely. Even if leverage of UCITS funds is not excessive, it can still add to the procyclical selling of assets if a fund tries to keep its leverage constant during periods of stress. I hope that gives you a good perspective on our current assessment of financial stability risks. I look forward to hearing your own views on these and other vulnerabilities for the euro area financial system. 2/2  BIS central bankers' speeches
The reliability of the mark-to-model approach, however, relies heavily on assumptions and on the availability of reliable data. Data on tail events (events that occur rarely, but have major repercussions) would be particularly beneficial for the calibration of models. There is, however, by definition hardly any data on such events. This begs the question as to whether the dangers associated with tail events are being correctly assessed using the available models, or whether model risks pose a problem. Thirdly, it is unclear whether the finance industry’s capital buffer – in the form of equity capital – is adequate to weather particularly bad storms. Like airbags in a car, equity capital is only rarely called into action. Yet, the more serious the accident, the more generously the bags should be filled with air. In the current economic environment, many market participants are highly leveraged, in other words, they have a low ratio of debt to equity capital. Low levels of equity capital can be compared to a thin airbag – they only protect against moderate shocks. It would only take a loss of 2–3% of the balance sheet total, for instance, for Swiss big banks to use up all their equity capital. Of course, a loss of this magnitude is highly unlikely. After all, the Swiss big banks are well-diversified, have sophisticated risk management models in place and have high risk-weighted capital ratios. This notwithstanding, such a loss cannot be ruled out.