"It is essential to understand the impact that the agreed G20 reforms-and other, national-level reforms-are having on firms and markets, in order to achieve a better balance between the goals of greater financial resilience and economic growth," wrote the IIF.
The IIF noted that against a backdrop of subdued global growth, cross-border capital flows have fallen to just 5% of GDP from 15% in 2007. As the U.S. moves ahead with monetary policy normalization, it will be vital to monitor the implications of tighter global liquidity conditions in conjunction with ongoing and further regulatory initiatives.
Assessing market liquidity, the IIF noted that recent signs of market dislocation-including more frequent spikes in volatility, price gapping, reduced trading volumes, pricing anomalies in repo markets, and negative swap rates-can be attributed in part to QE and persistently low/negative interest rates.' However, they also reflect a wider decline in market-making and client-trade facilitation-due at least in part to the impact of regulatory tightening. If such dislocations persist and proliferate, wrote the IIF, they could pose significant risks to financial stability and investor confidence.'
The IIF also advocated ongoing collaboration with global bodies to facilitate private-sector support for investment, job creation and growth, in areas including:'
- Developing a policy framework for financial technology innovations;
- Supporting a more robust economic recovery via capital investment in infrastructure; and
- Understanding and addressing high debt levels.
The letter was addressed to the Chairman of the International Monetary and Financial Committee at the IMF and the Chairman of the Development Committee of the World Bank.'