mechanism is exacerbated when funds are allowed to run on a mismatch between redemption rules and the liquidity of their portfolios ; not surprisingly, open - end funds behaved more procyclically than other investors did during the march turmoil. moreover, while funds provide greater diversification for end - investors, they typically display little diversity in their own strategies within each investment class. state - of - the - art strategies are likely to be similar across many funds ; besides, as managers are compensated relative to benchmarks, they tend to replicate the investment strategies adopted by peers. the resulting herd behaviour will further amplify shocks and cause contagion. herding is, however, very much inherent in etfs and passive funds, which have been shown to increase the sensitivity of peripheral markets to global shocks. 1 finally, algorithmic and high - frequency trading, widely used by asset managers, tends to increase market efficiency during normal times, but may break down during high volatility episodes, increasing the procyclicality of prices and liquidity. 2 the bank of italy had long been advocating for international financial standard setters to tackle some of these vulnerabilities. this was largely ignored until the covid crisis made them obvious to all, when investment funds played a crucial role in market disruption and, specifically, in capital flow reversals. 3 nbfi reform is now very much on the fsb ’ s agenda. the italian presidency of the g20 has made it one of its key priorities in the finance track. while some issues are still controversial, progress has been palpable in some key areas, and i am confident that a more comprehensive approach is gradually developing. this was my first main point. my second point concerns the policy responses during the pandemic, which proved effective in dealing with large and volatile capital flows. as is well known, the actions taken by ae authorities after the outbreak of the pandemic, including the introduction of swap agreements by major central banks, contributed to improving global financial conditions ; as investors ’ risk appetite returned, emes ’ capital inflows recovered and tensions on foreign exchange ( fx ) markets eased. the point to which i would like to draw your attention is that a number of eme policy makers also played a crucial role during that episode, as shown for instance in a joint paper by the bank of england and the bank of italy. 4 to mitigate the impact of the covid - 19 shock on

zeti akhtar aziz : growth and development of the world economy welcoming remarks by dr zeti akhtar aziz, governor of the central bank of malaysia ( bank negara malaysia ), at the official opening of the world bank group knowledge and research hub in malaysia, sasana kijang, kuala lumpur, 28 march 2016. * * * it is my great honour to welcome the distinguished senior leadership of the world bank group, dr axel van trotsenburg, vice president of development finance ; and dr kaushik basu, chief economist and senior vice president, to the master lecture on'shared prosperity'by dr kaushik basu. the lecture is held in conjunction with the official opening of the world bank group knowledge and research hub in sasana kijang later this afternoon. as we meet today, the global economy is confronted with an immensely challenging environment. a slower than anticipated growth in several major economies, the sharp decline in commodity and energy prices, the significant shifts in global liquidity, and the heightened geopolitical tensions are having far reaching and widespread implications. going forward, the challenge for both the advanced and emerging economies is to lift growth trajectories and search for sustainable growth factors that can rebuild economic fundamentals, address structural vulnerabilities and forge new sources of growth. key is the " sustainability " and strengthening of the growth and development of the world economy. an important aspect in this process is that economic growth and development, no matter how stellar, will begin to fade when inequality sets in and when income disparities widen. experience has also shown that financial crisis and economic recession entrenches the cycle of poverty. during a financial crisis, the poor lose their income by several times more compared with the average household. we saw this happen during the recent global financial crisis, and we also saw how many that were displaced suffered " hysteresis " thus deeply affecting their income prospects. we also risk facing a severe setback in our fight against poverty. in the more recent years, the international community has accorded greater attention to addressing this agenda and to achieving more balanced and inclusive growth. malaysia, while achieving growth and progress since the 1960s has always given attention for it to be a shared prosperity. given the role of the financial system in facilitating this, bank negara malaysia has always given priority to the financial inclusion agenda to not only bring the underserved segments of society into the financial mainstream but to promote a more effective participation