In this report, we analyze the latest G-20 agenda on financial reform, one that took a decidedly back seat to global economic worries at the latest ministerial. FSB head Mark Carney characterized his current agenda as implementation, but in fact his to-do list includes many significant new action items. In our view, the most significant of these is the recognition that current financial-market conditions are very risky due to a combination of yield-chasing and what Mr. Carney calls “liquidity illusions.” The latter is in part the result of continuing FSB concerns about asset-management liquidity risk, but it is also the first public recognition of potential market freezes under stress. No near-term action to address this, however, is laid out beyond the overall reform agenda.

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