Leveraged positions stay vulnerable to sudden unwinding, as margin calls play amplifying position
Financial institution for Worldwide Settlements, Basel
A postmortem of the August 5 market shock by economists on the Financial institution for Worldwide Settlements (BIS) finds that many triggers of the “flare up” nonetheless pose threats to stability.
The evaluation highlights how risk-taking worldwide continues to be excessive and says a number of the positions unwound through the shock had been shortly rebuilt. It additionally underscores how leverage and margin calls proceed to behave as amplifiers of shocks, given the vast and rising use of market-based finance.
The authors – Matteo Aquilina
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