These are to be welcomed, provided the overall level of resilience is maintained. Resisting Fragmentation There are, however, other nascent risks that, if left unchecked, could threaten the progress made, and, ultimately undermine the G20’s objective for strong, sustainable and balanced growth. These risks include the impact of reform fatigue on implementation momentum, the outcome of Brexit negotiations, the need to complete Basel III, and the importance of finishing the job of ending too big to fail. In many respects, the global financial system is at a fork in the road. On one path, trust and cooperation diminishes, fragmentation hardens, capital flows are disrupted, and trade and innovation are curtailed. If authorities do not have sufficient confidence that their efforts to promote financial stability are being reciprocated elsewhere, then concerns about the risks of openness could intensify. If that happens, domestic authorities could impose local requirements on domestic entities of foreign firms. In a world where many banks and FMIs are highly interconnected that would generate significant inefficiencies, frustrating the benefits that flow from open trade and investment. Taking this low road would be sub-optimal for all, with fewer jobs, lower growth and higher domestic risks. 10  One example is a report by the Committee on the Global Financial System on the resilience of global repo markets that is being delivered to the G20 this week. 8  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  8  But there is another path: the high road.

6 See FSB Policy Recommendations to Address Structural Vulnerabilities from Asset Management Activities. 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  At the same time, however, asset management’s importance reinforces the need to minimise the risk of sudden stops in times of stress. The FSB estimates that in 2015, more than $ trillion of assets were held in funds susceptible to such risks. 7  In January 2017, responding to the direction of G20 Leaders in Hangzhou, the FSB finalised its recommendations to address structural vulnerabilities and reduce liquidity mismatches associated with asset management. These recommendations are now being operationalised by IOSCO. 8  The financial system is also simpler because more durable market infrastructure is untangling the previously complex – and dangerous – web of exposures in derivatives markets. A decade ago, OTC derivative trades were largely unregulated, unreported and bilaterally cleared. Uncertainty about such exposures contributed to the panic. In Pittsburgh in 2009, the G20 announced a series of reforms designed to make these markets safer and more transparent, including by requiring trade reporting and by encouraging central clearing of OTC trades. CCPs reduce contagion risks in banking, and they make the massive derivatives markets more robust. The extent to which they reduce overall systemic risks, however, depends on their resilience and resolvability. To those ends, CPMI-IOSCO and the FSB will deliver further, detailed guidance for CCP resilience, recovery and resolvability to the Hamburg Summit.