klaas knot : a global europe to meet global financial stability challenges speech by mr klaas knot, president of the netherlands bank, at the eurofi high level seminar 2022, paris, 25 february 2022. * * * thank you didier, it is great to be back. as you indicated in your kind introduction, this time i am speaking here in my capacity as chair of the financial stability board, although with a nod to my other hat, as president of de nederlandsche bank. but whether you stand on top of the bis tower in basel – where the fsb is housed -, the eurotower in frankfurt, or the toorop building in amsterdam, the view is not fundamentally different. in fact, many financial stability risks we face today are not only common across europe, but are global in nature. and these global issues require global cooperation, which is why they are at the top of the fsb ’ s agenda. today i want to talk about these global issues, what the fsb is doing, and how europe can play its part. i will be discussing these issues against the backdrop triggered by the russian invasion of ukraine. developments keep evolving as i am speaking, and i do not want to engage in any speculation about what might happen. but we need to be alert that the dramatic shift in the geopolitical landscape may also affect the functioning and resilience of the global financial system. one of the first priorities for policy makers worldwide is to navigate their economies out of the covid pandemic. the economic fall - out of the pandemic seems to be subsiding, and the extraordinary fiscal and monetary support measures that kept economies afloat are being gradually unwound. but, as the economic recovery is proceeding at an uneven pace across regions, this unwinding process is increasingly likely to be asynchronous. this creates the potential for cross - border spillovers. moreover, since the onset of the pandemic, both public and private sector debt have increased, while asset valuations have grown amid a continued search for yield. this has made the global financial system more vulnerable to a disorderly tightening of financial conditions. a concern that has been accentuated lately by the return of high inflation. the job of the fsb here is to monitor and analyze developments closely and facilitate global coordination of policies, where necessary, to minimize the risk of a disorderly exit. at the same time as we need to chart a

less accommodative monetary policies in the major economies and the occurrence of a number of shocks could have resulted in disorderly adjustments in asset prices by exposing “ stretched ” asset valuations in some markets and “ overextended ” balance sheets. this did not happen. the gradual shift to less accommodative monetary policies in all major economies proceeded smoothly. the system endured several shocks over the past six months. for instance, there was a bout of volatility across a broad range of financial markets during may and june but the markets comfortably absorbed the disturbances and no major financial institution was significantly impacted by the event. it should also be recalled that there had been some anxiety that disruptive asset price dynamics could have been triggered by an idiosyncratic collapse of a large hedge fund. however, the plunge into financial distress in september 2006 of amaranth advisors had little discernible impact on markets. against this background, in the euro area over the past six months, conditions for raising funds in the credit and equity markets remained favourable, there was a further and broad - based improvement in the profitability of banks, and the balance sheets of insurance companies were strengthened further. in addition, key financial infrastructures – including payment systems such as target, and securities clearing and settlement systems – remained robust and continued operating smoothly. iii. overview of the main risks and vulnerabilities iii. 1 external environment turning to the current assessment and starting with the external environment, a global source of medium - term risk for the stability of financial systems continues to be the large global financial imbalances, despite some rebalancing of global growth patterns and recent declines in oil prices [ see slide 3 ]. while there are indications that global financial imbalances have been widening at a slower pace than before, they are not expected to narrow significantly in the short term. the prolonged accumulation of expanding us current account deficits has been a source of unease because the financing of these deficits relies on the continuation of capital inflows from surplus emerging market economies and oil - producing countries [ see chart on the left of slide 3 ]. commodity price swings, especially in the oil markets, can also pose risks for financial stability through various channels both indirectly and directly. indirect effects pass through macroeconomic channels as high and volatile oil price levels pose risks for economic growth and inflation with potential adverse effects on asset prices. as regards direct effects, there are indications that speculative activity in the markets for derivatives on