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The COVID-19 shock infected the euro area’s financial markets, causing races for liquidity and sell-offs of even safe assets, including sovereign bonds. The European Central Bank stepped in decisively to avert further damage by implementing sound monetary policies, demonstrating the importance of being prepared before a new crisis unfolds.
Klein reviews "DeFi and the Future of Finance" by Harvey Campbell, Ashwin Ramachandran, and Joey Santoro
This feature analyses decentralised finance (DeFi), a new form of crypto intermediation that uses automated protocols on blockchains and stablecoins to facilitate fund transfers. Even though links with traditional finance are currently contained, DeFi warrants closer monitoring because of high leverage, limited shock-absorbing capacity and built-in interconnectedness.
<ul> <li> <p><span>Non-bank financial intermediaries (NBFIs) have grown significantly. Their activities can amplify market stress and undermine financial stability.</span></p> </li> <li> <p><span>A macroprudential regulatory approach is needed to address the structural vulnerabilities in NBFIs, most notably liquidity mismatches and hidden leverage.</span></p> </li> <li> <p><span>Concerns about a new virus variant late in the per...