That is why G20 reforms have significantly increased the standards to which CCPs are held, ranging from higher margins and liquidity to better operational and cyber resilience.28 To finalise its policy work, the FSB will report to G20 Leaders next month on the need for guidance on CCP financial resources in resolution.29 Now is the time for FSB members to address any gaps in their supervisory and resolution frameworks for CCPs. For example, some authorities do not yet have all of the resolution powers expected under FSB standards. And it’s time for the FSB (in conjunction with CPMI-IOSCO) to assess whether, when taken together, reforms to resilience, recoverability and resolvability are sufficient and are working as intended. A decade on from the financial crisis, a series of measures are eliminating the fragile forms of shadow banking while reinforcing the best of resilient non-bank financial intermediation. The toxic forms of shadow banking at the heart of the crisis – with their large funding mismatches, high leverage and opaque, offbalance-sheet arrangements – no longer represent a global stability risk (Chart 4). And other, more constructive forms of non-bank finance, including money market funds and repo markets, are subject to new policy measures that reduce their risks and reinforce their benefits. 27  See FMSB Annual Report (2017) for examples of misconduct over two centuries. See CMPI-IOSCO’s Principles for Financial Market Infrastructure (PFMI). 29 FSB Chair’s Letter to G20 Finance Ministers and Central Bank Governors, March 2018.
Consider the example of fixed income, currencies and commodities (FICC) markets, which have historically relied heavily on informal codes and understandings.17  12  Recall that the Arrow-Debreu world relies on people being able to calculate the odds of each and every possible scenario. Then they can trade contracts and insure each other against risks they are unwilling to bear. Even a moment of introspection reveals the absurdity of these assumptions as a description of the actual world. More often than not, even describing the universe of possible outcomes is beyond the means of mere mortals, let alone ascribing subjective probabilities to those outcomes. 13 Knight, F (1921), Risk, uncertainty and profit, Signalman Publishing. 14 FA Hayek Nobel prize speech 1974 “The pretence of knowledge”. 15 In Keynes (1936), Chapter 12, he wrote: “Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits – of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.” Keynes, J M (1936), The General Theory of Interest, Employment and Money, Palgrave Macmillan.