The views expressed in these remarks are those of the speaker in their role as FSB Chair and do not necessarily reflect those of the FSB or its members.
Thank you for the invitation to speak to you today.
I want to discuss two of the most difficult challenges in managing systemic risk. The first is transparency: whether market participants can see and understand the risks building in the system. The second is how we identify what is, and what is not, a systemic risk.
These issues are closely connected. A risk that is visible, understood and capable of being priced may be manageable. A risk that is opaque, interconnected and poorly understood can become destabilising very quickly.
As we approach Black Friday, an exciting day for shopping markets, I want to illustrate those challenges by looking back at a less enjoyable day for financial markets: Black Monday.
Back in 1987, just four years after International Organization of Securities Commissions (IOSCO) was founded, we learnt that a lack of transparency can greatly amplify stress in a crisis. By transparency, I do not mean perfect information. Markets will always operate under uncertainty. The issue is whether material information gaps prevent participants and authorities from understanding and managing risks, particularly how stress might spread through the system.
Capital markets were becoming increasingly international and the need for cooperation among securities regulators was clear. The founding of IOSCO reflected an important insight: markets do not stop at national borders, and effective regulation cannot do so either.
IOSCO’s initial focus was on sound securities markets and protecting investors. In 2013 its mandate expanded to include systemic risk, giving transparency a new importance. IOSCO’s former Secretary General David Wright identified four enduring themes: tackling risks before they build; creating risk-identification infrastructure; addressing the data deficit; and improving cross-border enforcement and compliance. He also warned that fragmentation would be a major challenge.
IOSCO has since made solid progress, working with the Financial Stability Board, the Committee on Payments and Market Infrastructures and through its own Financial Stability Engagement Group. As an IOSCO Board member when FSEG was established, I have seen its importance in developing IOSCO’s perspective on systemic risk. Yet material information gaps remain.
Let me turn back to Black Monday in October 1987. The Dow fell 22.6% in a single trading session and the S&P 500 fell 20.47%. The sell-off spread across the world.
The Brady Commission, established in the United States to investigate the crash, identified inadequate cross-market information as a central problem. Activity in futures markets had driven down equity prices, yet no real-time, cross-market information or coordinated tracking mechanisms helped participants understand what was happening. Fear of the unknown intensified asset sales.
Important reforms followed, including multi-tier circuit breakers, aligned margining rules and better coordination among regulators. But cross-market dynamics remain a challenge. When participants cannot see what is happening, they fill the gap with assumptions. In stress, those assumptions are often negative. Risk becomes uncertainty, uncertainty becomes fear, and defensive behaviour produces contagion.
The same issue was evident in the failure of Lehman Brothers in 2008. Creditors ultimately recovered significantly more than market pricing at the height of the crisis suggested, and some recovered 100%. Was the market wrong to be so concerned? No. The market was right to be concerned because it could not see how serious the problem was.
The deeper lesson is the need for visibility across an interconnected financial system. Participants need to understand exposures, legal entities, collateral, contractual relationships and possible channels of contagion. Otherwise stress can spread, not necessarily because every institution is insolvent, but because no one can be confident about who is exposed to whom.
Nearly forty years after Black Monday, the sources of opacity have changed but their capacity to amplify shocks has not. Let me give two examples.
The first concerns sharp market movements following US tariff announcements in April last year. Bond markets moved significantly, but it was not immediately clear why. The spike in long-maturity US Treasury yields was unprecedented and difficult to interpret. Explanations ranged from changing inflation and growth expectations to fiscal concerns, foreign demand and the unwinding of leveraged positions.
This points to a broader vulnerability. The composition of investors in government bond markets has changed. Traditional investors such as pension funds have become less active, while hedge funds and other leveraged non-banks play a larger role. Pension funds tend to pursue longer-term strategies. Leveraged hedge funds can build and unwind exposures much faster as conditions change.
We saw the implications in the UK earlier this year. During the most significant volatility following the onset of the Middle East conflict, moves in gilt yields were amplified by hedge fund deleveraging. Net hedge fund borrowing in gilt repo markets fell by around 40% between December 2025 and mid-April 2026.
Hedge fund participation is not itself a problem and can provide liquidity in normal times. The vulnerability arises when highly leveraged positions unwind rapidly. Neither market participants nor authorities always have a sufficient picture of those positions, especially where they span borders and jurisdictions.
This is precisely what the FSB’s Nonbank Data Task Force was created to address. Its first test case focuses on leveraged trading strategies in sovereign bond markets. More broadly, it is examining how authorities can identify vulnerabilities in the non-bank sector and how better information sharing, including data, can mitigate threats to financial stability.
Cooperation between the FSB and IOSCO is essential, and I am grateful for IOSCO’s engagement. We cannot conclude that information sharing is simply too difficult. But visibility is only part of the solution. Authorities must also implement the policy measures in the FSB’s 2025 leverage recommendations.
The second example is private credit. The FSB has highlighted uncertainty about valuations, leverage, liquidity, underperforming loans, lending terms, borrower concentration and links among private credit funds, banks, insurers and other investors.
This does not mean private credit will necessarily harm the system. It means its resilience is difficult to assess when information is incomplete and assets are not continually priced or traded. The absence of visible stress should not be mistaken for the absence of risk.
Some ask why we keep looking at private credit when it is not large enough to move the global financial system. The answer is interconnectedness. It may not move the system alone, but it could be one domino in a chain reaction. Shared exposures among banks, insurers and funds could amplify a shock. If markets can imagine that possibility and lack facts to counter it, they will act on the concern.
This echoes Brady’s fear of the unknown. Contagion remains central to financial stability because a problem in one market can spread through common exposures, collateral calls, margin requirements, forced sales, liquidity withdrawals or a simple loss of confidence. That makes it dangerous to believe we can judge precisely what is, and what is not, a financial stability risk.
Global systemically important banks are not identified by size alone. Interconnectedness, complexity, cross-border activity and the difficulty of substituting for their functions also matter. Since the collapse of Silicon Valley Bank, the FSB has increasingly used the language of institutions that can be ‘systemic in failure’. This directs attention to an institution’s connections at the point of failure and how distress may transmit through the system.
An institution or market can therefore become a key risk without appearing exceptionally large. It may become a domino in a chain reaction driven by fear, and that fear may arise from a lack of transparency. We do not need certainty that something will cause a systemic problem before examining it. We need to understand its connections well enough to know what might happen if confidence disappears.
This leads to an obvious question: how large, or how connected, must private credit become before it poses a financial stability risk? Stablecoin arrangements raise similar, if distinct, questions. Timely information about reserve composition, redemption mechanisms, custody, governance and operational dependencies can be missing. The issue is not simply market capitalisation, but whether lost confidence could generate rapid redemptions or disrupt a function important to wider markets.
In each case, we must examine exposures, liquidity arrangements, counterparty concentration, substitutability and the speed at which confidence can deteriorate. Information gaps and growing interconnections mean private credit and stablecoins could become financial stability risks sooner than conventional size measures suggest. That is why forward-looking surveillance matters. We should not wait for a risk to become large before examining its potential to generate contagion.
Greater transparency is not an end in itself. It must enable authorities and market participants to form a more accurate view of where risk sits, how it is financed and how it might move. That requires information which is timely, comparable and usable across legal entities and borders. A large stock of fragmented data is not the same as a clear view of the system. The tariff episode also illustrates why explanations formed in real time can be unreliable. Some participants focused on inflation expectations; others on fiscal concerns, growth, foreign demand for US assets or leveraged unwinds. Several of those forces may operate together. Without a better view of positions and flows, authorities can see the market move without being able to distinguish a change in fundamentals from an amplification mechanism.
That distinction matters for policy. We should not seek to prevent markets from adjusting to new information. Price discovery is essential. But we should seek to prevent hidden leverage, concentrated positioning or abrupt liquidity demands from turning an orderly repricing into a destabilising spiral.
The aim is resilient market-based finance, not the elimination of market movement. Private credit presents a different version of the same challenge. The assets are less frequently traded, valuations are less observable and contractual terms vary. Risk can therefore appear subdued for longer. But delayed recognition is not the same as resilience. When credit quality deteriorates, uncertainty over valuations, financing arrangements and links to banks and insurers may cause participants to reassess several exposures at once. Stablecoins add questions about the composition and custody of reserves, the credibility of redemption mechanisms, operational dependencies and governance. A loss of confidence can move quickly because redemption incentives are immediate.
The relevant question is whether the arrangement can meet those demands without forced asset sales, disruption to payment or trading activity, or transmission to institutions performing related functions.
Across these examples, size remains relevant but is not decisive. A smaller institution or market can become systemic in failure if it performs a hard-to-replace function, is connected to many counterparties or triggers common defensive behaviour. Conversely, a large activity may be manageable where exposures are transparent, liquidity is robust and credible arrangements exist for stress. This is why surveillance must combine quantitative indicators with judgement.
Authorities need to examine leverage, liquidity, concentration, substitutability and operational dependencies; run stress analysis; compare information across sectors; and consider how confidence might change behaviour. They must also be willing to investigate plausible transmission channels before conventional indicators flash red. International cooperation is indispensable. Activities and exposures cross borders, while data and legal powers remain organised largely by jurisdiction.
Effective cooperation requires common definitions, proportionate reporting, secure mechanisms for sharing information and a willingness to resolve obstacles rather than accept them. The FSB can bring the system-wide view; IOSCO can bring deep knowledge of securities markets and their regulation. Together, they can turn fragmented information into a clearer assessment
Conclusion
Let me finish where I started, with Black Monday. The financial system today looks very different from the one that experienced the crash of 1987. But the central lesson is the same: what we cannot see can matter just as much as what we can.
In 1987, opacity about activity and exposures across markets amplified uncertainty and contagion. Today, opacity takes different forms: private markets, leverage, complex interconnections and new forms of finance. The risks did not then, and do not now, lie neatly within one market or one regulator’s remit. Understanding them requires authorities to look across markets and borders.
That is why the relationship between IOSCO and the FSB matters. IOSCO’s principles have established common expectations around regulation, supervision, cooperation and market integrity. IOSCO and the FSB have also worked together on vulnerabilities in the non-bank sector, including liquidity mismatch in open-ended funds, margining practices and leverage. The aim is to prevent stress in particular markets or institutions from being amplified across the wider financial system.
IOSCO’s work with CPMI is equally important, covering margining, clearing, recovery and the resilience of financial market infrastructures. Central clearing does not remove risk. But it can make exposures more visible, standardise risk management, improve default management and reduce uncertainty about who owes what to whom.
The relationship between IOSCO and the FSB should be complementary. IOSCO brings deep expertise in securities markets and activities; the FSB brings a system-wide perspective across sectors and jurisdictions. Together, those perspectives can help identify where risks are building and, crucially, how they might spread.
Our objective should be stronger cooperation, better information exchange and earlier consideration of emerging vulnerabilities. Financial stability is not achieved by predicting every crisis with precision. It is achieved by building markets and institutions that are sufficiently transparent, resilient and connected to competent oversight that shocks do not become unnecessary crises.
IOSCO has a central role in that effort. I look forward to continuing our work together.
