There has been a “seismic shift” in global financial markets – “the use of collateral, notably in the form of government securities” becoming “ubiquitous” at the cost of directly assessing borrower cash flow.
Pushed along by policy this switch from relationship to transactions banking has resulted in an unprecedented broadening and deepening of financial markets, especially derivatives.
Yet, this has also created huge vulnerabilities in financial markets, according to a new BIS article.
