Notes: Chart shows the sensitivity of different capital flows to a negative "push" shock. Coefficients are standardised by each component’s share of total flows e.g. the red MBF bar shows how total Capital Flows-at-Risk would respond to a one standard deviation tightening in global financial conditions if all capital flows were accounted for by MBF. Estimates are based on the FSB’s measure of ‘collective investment vehicles with features that make them susceptible to runs’, see FSB Global Monitoring Report on Non-Bank Financial Intermediation 2018. 18 The initial version of the speech mistakenly referred to Real Estate Investment Trusts here, instead of open-ended funds. 17  14  All speeches are available online at www.bankofengland.co.uk/speeches  14  The third aspect of the pipes is the global financial safety net (GFSN). Developments in this regard have arguably further increased Capital Flows-at-Risk. The GFSN has become more fragmented over the past two decades and its core – IMF resources – has shrunk relative to the size of the global financial system (Chart 14). As a result, individual countries have chosen to self-insure at high cost to both themselves and the rest of the world. While the IMF’s nominal resources have more than tripled over the past decade, they still only represent around 1% of global gross external liabilities and have been on a downward trend from 2.5% in 1980. Other multilateral arrangements, such as Regional Financing Arrangements (RFAs) and swap lines, are only partial substitutes.
The last point that I want to make is that I disagree with those economists who speak of the difficulty of anticipating the East Asian crisis, since these countries had assembled all the ingredients of a perfect crisis recipe: •  An appreciated exchange rate;  •  A high and worsening ratio of short-term debt to usable foreign reserves;  •  Untransparent off-balance-sheet items in the banking sector;  •  A widening current account deficit;  •  Steep growth of domestic credits;  •  And a continuous decline, during recent years, in emerging markets’ borrowing spreads without matching improvement in their economic fundamentals. If someone should combine all these elements, it is conceivable that they might succeed in creating a crisis. But the world’s financial centers turned away from the existence of this perfect crisis recipe and turned toward the Turkish economy, for which, ignoring the developments in East Asia, they predicted a crisis during the last couple of years. The Turkish economy does not satisfy the perfect crisis recipe described above. Of course we have high inflation, a high nominal budget deficit, and high short-term domestic debt, but on the other hand Turkey’s exchange rate policy, current account situation, the nature of its short-term external debt, and other fundamentals do not indicate an alarming situation. The East Asian crisis should have greatly improved the ability of economists to predict an episode. I would be glad to see some evidence of this improvement. BIS Review 50/1998