Market stabilisation Once investors absorbed the full implications of the pandemic crisis and sought to rebalance portfolios, market liquidity in securities markets dried up and investors looked for safe havens in the context of revisions to future prospects and intrinsically high uncertainty. A marked tightening of overall financial conditions in the euro area (and globally) took hold with the deepening of the coronavirus crisis (Chart 8, left panel). The fall in stock prices, the increase in market-based financing costs for firms and (to some extent) the appreciation of the euro contributed to the tightening that took place between mid-February and mid-March (Chart 8, right panel and Chart 9). This was also evident in the equity and corporate bond markets (Chart 10 and Chart 11). It was also reflected in an increase in the average spread of sovereign yields relative to the OIS curve (Chart 12). Chart 8 Financial conditions in the euro area  https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp200519~e5203d3520.en.html  6/14  5/19/2020  Pandemic central banking: the monetary stance, market stabilisation and liquidity  (index)  Source: ECB. Notes: Daily data. The financial conditions index (FCI) is constructed as a weighted average of the one-year OIS, the tenyear OIS, the euro area nominal effective exchange rate vis-à-vis 38 trading partners and the Euro Stoxx Broad Stock Exchange Index. All variables are in deviation from their long-term average.
Specifically, the Review identifies: –  Market structures which presented specific opportunities for abuse, such as poor benchmark design, and which more generally were vulnerable to conflicts of interest, collusion, and thin markets;  –  Standards of acceptable market practice that were usually poorly understood, often ignored and always lacked teeth;  –  Firms’ systems of internal governance and control that were incapable of asserting the interests of firms – let alone the wider market – over those of close-knit trading staff;  –  Individual incentives that were skewed, with pay packages stressing short-term returns overlong-term value and good conduct;  –  And personal accountability that was lacking, with a culture of impunity developing in parts of the market. All these factors contributed to an ethical drift. Unethical behaviour went unchecked, proliferated and eventually became the norm. Too many participants neither felt responsible for the system nor recognised the full impact of their actions. For too many, the City stopped at its gates, though its influence extended far beyond. A good start has been made in addressing these deficiencies. The design and regulation of key FICC benchmarks has been overhauled and transparency in FICC markets is being enhanced. Compensation rules have, in the main, been transformed to align better risk and reward. From next year, senior managers of banks and insurers will be held directly accountable for failures in their areas of responsibility. And the best firms are improving the “tone from the top”, launching conduct training and revamping control structures.