the global financial cycle, capital flows, and policy responses remarks by luigi federico signorini senior deputy governor of the bank of italy g20 rbwc workshop towards a more resilient international financial architecture online event, 10 may 2021 the covid - 19 crisis gave rise to a synchronised sudden capital stop in march 2020, whose magnitude exceeded that observed during the global financial crisis. fortunately, this episode was short - lived and concentrated in the early stages of the pandemic. the pressure on emerging market capital flows eased after the unprecedented policy interventions carried out by both advanced economies ( aes ) and emerging market economies ( emes ). an important factor in the scale of the outflows seen at the outset of the pandemic was the shift that had occurred over the previous decade in the composition of capital flows, towards non - bank financial intermediaries ( nbfis ), and in particular, investment funds. this is the first of two main points i want to make. nbfis tend to be more volatile than other sources of finance, such as bank lending and foreign direct investment. this was apparent during the march 2020 ‘ dash - for - cash ’ stage. investment funds accounted for around half of the portfolio outflows observed, even though they ( by some accounts ) only represent a third of the stock of global portfolio liabilities. why has nbf intermediation and cross - border activity grown so much? several factors have contributed, but let me mention just two that are especially relevant to global flows : – first, the basel reforms adopted after the global financial crisis led banks to deleverage, thereby reducing non - core assets and cross - border lending ; – second, low interest rates in developed markets encouraged investors to diversify their assets by investing in emerging markets, often through dedicated funds ( or through increased allocations to emerging markets by globally active funds ). the growth of market - based finance is, on balance, a welcome development, notably because it increases the diversification of funding sources. this is particularly important for those countries and systems, such as italy and much of continental europe, that are overly dependent on banks. while funds may increase the size and liquidity of markets in peacetime, they are also known to be a potential channel for shock amplification in the event of stress. because of redemption pressures coming from end - investors, fund managers may find themselves forced to sell assets, contributing to price - liquidity spirals. this

luigi federico signorini : risks from inflation and opportunities from fragmentation speech by mr luigi federico signorini, senior deputy governor of the bank of italy, at the villa mondragone international economic seminar, round table on " risks from inflation and opportunities from fragmentation ", monte porzio catone ( rome ), 7 june 2023. * * * after the second world war, multilateral institutions, such as the international monetary fund, the world bank and the world trade organization ( as it is now called ), have provided a framework in which a rule - based system of international cooperation has flourished, though initially only in our part of the world. a similar framework for cooperation in other key fields has been provided by the who and other institutions. starting about a generation after the war, and over another generation, the system expanded in stages. in the late 1970s or early 1980s, china began to experiment with a cautious, but rapidly accelerating, opening to a more market - oriented economy and to international trade ( while pursuing, in parallel, a normalisation of diplomatic relations with the rest of the world ). at the end of the 1980s, the soviet bloc disintegrated, and with it the socialist planning system that had ruled its economy ; many of the former soviet bloc countries became free democracies as well. soon after, india started to dismantle the so - called " licence raj " – a process that lasted for an extended period of time – and gradually embraced the idea of free markets as the driving force for development. much of east asia did the same, notwithstanding the great diversity of political regimes that existed then and still exists today. globalisation accelerated, spurred by increasing economic freedom, lower international barriers and the revolution in information and communication technologies. looking back, globalisation has been an enormous, though sometimes underestimated, force for improving prosperity worldwide. those of my generation cannot have forgotten the destitution and hunger that were widespread half a century ago in what was then called the third world, including much of asia outside japan ; the recurring appeals to the rich world's conscience for mitigating the suffering this produced, amid a rapidly growing population ; the political tensions and wars, sometimes arising from extreme economic disparities, and often stoked by superpower rivalries. sure, poverty and malnutrition are still there. but the share of people suffering from malnutrition globally has decreased from 34 to 13 per cent in the past