, which is used in the majority of cross - country comparison of cbm and capital controls usage. high - level policy seminar on integration or fragmentation? international capital flows in the post - crisis world, september 2019 central bank of chile currency - based measures with the exception of china, only countries suffering from original sin used and tightened cbms on banks ’ fx liabilities tightening no tightening no original sin original sin source : de crescenzio, golini, and ott ( 2015 ), “ currency - based measures targeting banks - balancing national regulation of risk and financial openness, ” oecd working papers on international investment 2015 / 03. recent evidence on the evolution of capital controls shows that chile has taken more liberalization actions than tightening actions on both inflows and outflows ( pasricha et al., 2018 ). the following figure shows the cumulated weighted net inflow easing actions and weighted net outflow easing measures in chile and in a group of emes ( excluding chile ). pasricha ( 2017 ) shows that policymakers use capital inflows tightening for macroprudential concerns, while use capital outflows easing for competitive purposes. in chile, the dynamic of outflows easing reflect mainly that pension funds ’ limits on investing overseas have loosen. nonetheless, chile is among those emes that are less active when it comes to capital control actions over the past decades. the challenge, however, still remains in terms of addressing the actual level of capital account openness rather than it ’ s tighten / loosen evolution. page 4 of 12 central bank of chile september 2019 high - level policy seminar on integration or fragmentation? international capital flows in the post - crisis world, september 2019 central bank of chile pasricha et al. indices of capital controls policy for chile and other emes pasricha et al. ( 2015 ) indices of capital controls policy for chile and other emes ( net easing ) inflows outflows 4. 0 4. 0 3. 5 3. 5 3. 0 3. 0 2. 5 2. 5 2. 0 2. 0 1. 5 1. 5 1. 0 1. 0 0. 5 - 2 0. 5 - 4 0. 0 total number of policy actions : 1 jan 2001 - 31 dec 2015 ( * ) baseline models include the 11 most active countries 01 03 05 07 09 11 13 15 - 5 01 03 05 07 09 11 13 15 egy cze mex

allocate risk efficiently, relies on complex products, liquid markets and a multitude of operators. but products may be opaque, market liquidity may dry up, and some operators may have strong incentives and be accordingly ready to place big bets. so although it is market - based, at least for now the otd model lacks the main feature of well - functioning financial markets : frequent and abundant trading, which at once requires and produces information and liquidity. as a result, while systemic events may have become less likely thanks to diversification and risk dispersion, their costs may have increased, with the overall increase in leverage and interdependence ( more on this later ). this suggests that “ tail ” risk might be larger than is commonly thought ; or, in other words, that the probability of extreme events is underestimated. shocks that would otherwise have been otherwise easy to manage may now become a threat to financial stability if they trigger a chain reaction, as could be the case of a shock to investors with large unbalanced positions or if many investors have similar models and strategies that lead them all to be on the same side of the market. 3. 2. greater interdependence the ongoing process of financial consolidation and the otd model have produced intermediaries that are closely intertwined with the capital markets. the large, complex financial institutions resulting from consolidation offer a broad range of products – from asset management to corporate finance and prime brokerage services – that rely on wellfunctioning capital markets. therefore, the otd model has increased banks ’ dependence on capital markets. today ’ s global financial system is also far more interconnected than in the past. this has some important consequences for financial stability : • since banks now sell their loans and offer a range of financial services, an illiquid market would generate substantial risks, such as warehouse risk ( i. e. the risk of being unable to find buyers and being stuck with products the bank might not want in the first place ) and additional market risks ( when assets sold in thin markets would send prices spiralling down, forcing additional sales by leveraged investors and sharply reducing liquidity – something we have seen in recent weeks ). to avoid this, at times banks may end up acting as a sort of “ lender of last resort to markets ”, with all the implicit effects on the availability of credit to other sectors of the economy and on financial stability. • since the intermediation model increasingly