Arrangements involving other authorities, such as other sectoral financial supervisors or deposit-insurance schemes, are not dealt with in this Special Feature. In the three years prior to the end of 2005, net inflows into the hedge fund sector were particularly strong, averaging USD 20 billion per quarter. However, net outflows in the last quarter of 2005 warned many hedge fund managers of the possibility of higher withdrawals in the future. This also raised questions about the factors that drive money flows into the hedge fund industry. It has frequently been suggested that the main drivers of inflows were the global search for yield, against a background of persistently low interest rates globally, coupled with high risk appetite among investors. This Box tests this hypothesis by discussing the funding liquidity risks faced by hedge fund managers and by analysing the determinants of aggregate money flows into single-manager hedge funds. The risk-neutral density (RND) extracted from financial options prices facilitates direct insights into the entire distribution of market expectations regarding the future price of an underlying asset at a given point in time. In the monitoring of the euro area insurance and banking sector, high-frequency indicators can be useful as part of the ongoing assessment of perceived risks. This Box aims at analysing two indicators that can be extracted from options market prices and which provide information on the degree of asymmetry and the fatness of the tails of the RND. These indicators are commonly known as risk-reversals and strangles respectively in foreign exchange markets. The reinsurance sector contributes positively to financial stability by providing a safety net for the primary insurance industry. Reinsurance companies typically absorb the most volatile part of the risk corresponding to peak exposures (i.e. the risk of substantial losses arising from events occurring with a low probability) which primary insurers are not willing to keep in their balance sheets. By pooling insurance risk, reinsurance firms can achieve superior risk diversification, both in term of business lines and geographically and after a catastrophe event, they tend to be able to endure losses transferred by the primary sector. As a result, risks and capital in the insurance industry tend to be better managed, making the primary insurance sector more resilient when it takes out reinsurance. Furthermore, despite their central role in the worldwide insurance markets as "insurers of last resort" and their very high business concentration, reinsurance undertakings are often not perceived as being a source of systemic risk. The low potential of financial market disruption and the limited counterparty risks for banks on the credit derivatives markets support the view that reinsurance undertakings are not systemic core institutions. This Box aims at questioning this view by analysing some of the ways in which the reinsurance sector may constitute a vulnerability or weak-spot for the stability of the financial system. In particular, it examines how the likely widespread inclusion of rating triggers in reinsurance contracts in the run-up to implementation of Solvency II may increase the vulnerability of reinsurers to liquidity risk in the same way as runs can take place on banks. The size and complexity of several euro area financial institutions make it difficult for supervisors and analysts to make an accurate assessment of individual institution risk. At the macro-prudential level, this presents a challenge in determining forward-looking risks to financial stability that originate from the banking sector. Public accounting information can be used for these purposes, but its value tends to be limited by reporting lags and the backwardlooking nature of the data. The third pillar of the Basel II accord clearly recognises the positive role that market discipline can play in reducing the risks to financial stability. Against this background, the prices of securities when issued on the primary market may also influence bank management. There are also advantages in using secondary market information in addition to accounting information, due to the ability of markets to process a large amount of information rapidly and to reflect this information in securities prices under normal market conditions. Subordinated debt holders might exercise more discipline than depositors or equity holders because depositors may be covered by deposit insurance, whereas equity investors may benefit from the bank taking on more risk under certain conditions. Monitoring the subordinated debt market segment therefore adds to the set of indicators on banking system stability that are capable of conveying information on future systemic risks. This is because wide spreads may indicate concerns of increasing risk. This Box provides a brief overview of the structure of the euro area bank subordinated debt market, comparing the euro area banking sector to other major economies, and it briefly analyses some data on individual issues by euro area banks. One way of gauging information about the robustness of the financial system on a continuous basis is to analyse developments in bank stock prices. From a financial stability viewpoint, knowledge of how the market behaves under extreme conditions is central. As such, it is important to take into account the well-established fact that stock returns often exhibit both excess kurtosis and skewness, which also tend to depend on actual market conditions. The degree of non-normality in stock returns may also be related to firm size. By using data on individual bank stocks included in the Dow Jones EURO STOXX banking sector index, this Box investigates the downside risks associated with euro area banks from an institution-size perspective.