As part of this assessment, this box analyses the growing importance of listed CRE companies, and a sub-set thereof known as real estate investment trusts (REITs), in the euro area. Emerging market economies have experienced accelerated financial deepening since the onset of the financial crisis. Consequently, financial stability risks emanating from emerging markets may spill over more widely to the global financial system. A key focus in this regard has been China, not least given the sheer size of its banking sector and the country’s growing role in international finance. Against this background, this box investigates the risks related to the growing size and systemic importance of Chinese banks and their possible implications for euro area financial stability. This special feature analyses the distribution of interest rate risk in the euro area economy using balance sheet data and information on derivatives positions from significant credit institutions. On aggregate, banks’ interest rate risk exposure is small relative to their loss absorption capacity, but exposure varies across institutions. This variation is driven by loan rate fixation practices at country level. Banks use derivatives for hedging, but retain residual interest rate risk exposures. In fixed-rate countries the main vulnerability to rising interest rates lies with the banks that have the greatest interest rate risk, while households would be directly affected in countries with predominantly variable-rate loans. In the latter case, increased loan servicing costs due to rising interest rates could affect banks through lower asset quality. Commodity traders are relevant from a financial stability perspective as they are active players in derivatives markets. Commodity dealers buy or sell a commodity and transform it, for example, by transporting or storing it, and may hedge the resulting commodity position with a derivative transaction. The derivative contract will hedge, for example, against commodity price risk, which is considered the largest risk for most trading firms, or against changes in foreign exchange rates. Thus, hedging is inherent to the business of commodity dealers and derivatives are central to commodity traders’ risk management frameworks. At the same time, there are concerns about the speculative use of derivative contracts. For example, in the US the Commodity Futures Trading Commission (CFTC) intends to establish position limits for physical commodity derivatives, with the aim to prevent excessive speculation from distorting commodity prices. An abrupt repricing of risk premia in bond markets has the potential to expose vulnerabilities in the rapidly growing investment fund sector. A shock to bond prices would give rise to first-round mark-to-market losses for open-end investment funds, particularly those with large exposures to debt securities. From a systemic risk perspective, these losses could propagate through the financial system if negative returns trigger investor outflows, eventually resulting in forced sales of fund portfolios. Such sales have the potential to amplify the original shock to bond prices, with wider financial stability implications in the form of impaired market liquidity and possible spillovers to the real economy, via negative wealth and confidence effects. This box sheds some light on this channel, dubbed the "flow-performance nexus", by quantifying the impact of an interest rate shock on the net asset values of euro area-domiciled investment funds (everything else held equal). More specifically, the first part of the analysis examines the impact of an increase in yields on the net asset value of the main euro area investment fund categories (equity, bond, mixed, real estate, money market, hedge and other funds), while the second part particularly focuses on euro area bond funds. Traditionally, the investment behaviour of insurance corporations and pension funds (ICPFs) has been viewed as having a stabilising effect on financial markets in that they act countercyclically by buying assets, the prices of which fall. Since ICPFs aim to match their long-term liabilities with their long-term assets, they are natural long-term investors and, as such, they typically hold assets until maturity and are less sensitive to short-term price movements. However, recent studies challenge this view by providing empirical evidence of procyclical Financial Stability Review November 2017 – Euro area financial institutions investment behaviour, whereby ICPFs sell assets after a drop in price, especially in periods of severe market stress. To stimulate post-crisis economies characterised by low growth and low inflation, some central banks, including the ECB, have adopted negative policy rates. The rationale for negative rates is that they provide additional monetary stimulus, giving banks an incentive to lend to the real sector and thereby supporting growth and a return to target inflation. An accurate assessment of bond market liquidity conditions is a crucial input for financial stability risk analysis. As commonly defined, "liquidity" measures how much trading volume a financial market can absorb for a given change in price or what the price impact of a given trade volume will be.