Virtually all of the net credit growth since then has been from the bond markets. In tandem, the assets under management have risen by 60% globally and 80% in the EU. These trends will continue as the Capital Markets Union is developed. The ESRB is currently contributing in two ways to more resilient capital markets. First, it is promoting a shared understanding of the fundamental drivers of market liquidity. Second, it is gathering consistent information on the nature and size of the risks associated with market-based finance. The ESRB has unique powers in this regard given its ability to collect information from financial participants from across the EU.1 The ESRB is currently surveying market makers and asset managers as part of a broader study into the risks from a reduction in market liquidity. This work should be completed by mid-2016. The survey will draw out the implications for liquidity conditions, including whether openended funds have liquidity sufficient to meet redemptions in the event of market stress. 1  2  Of course, the ESRB must exercise this power with care and precision. And the case for doing so must be compelling. But the rapid growth of market-based finance satisfies these tests. BIS central bankers’ speeches  In a similar survey of 143 investment funds, the Bank of England found that, in aggregate, these funds expected to be able to liquidate in one day roughly three times estimated dollar corporate bond market turnover; clearly a fallacy of composition. The ESRB survey will provide a valuable wider perspective.
With your leadership, the reform programme is substantially complete, and authorities are now implementing it to maximise its effectiveness. 2  4  Bank of England survey results. Respondents were asked for their views on the statement ‘I believe that financial markets work in the interest of society’. Possible responses were: strongly agree, agree, neutral, disagree, strongly disagree. Only one third agreed or strongly agreed. BIS central bankers’ speeches  But durable financial stability requires more than microprudential standards that bolster the resilience of individual firms. It also requires a macroprudential perspective, with flexibility to respond to shocks wherever they occur; with higher standards for systemically important firms; and to increase levels of resilience when risks increase. The ESRB has been helping Member states fulfil these roles, and it remains alert to emerging vulnerabilities. As President Draghi recently described to this Committee, over the coming year, the ESRB will develop assessments of the macroprudential stances of Member States to complement its existing risk monitoring and focus on the risks of low interest rates on financial stability and an abrupt transition to a low-carbon economy. Thank you for your attention. I look forward to your comments and questions. BIS central bankers’ speeches  5