At the start of 2009, financial market conditions were fragile but recovering. The Foreign Exchange Committee’s primary concerns continued to be funding and liquidity. In the first quarter, the Committee focused on capital and credit preservation as members closely monitored the effects of both on the global currency market. The Federal Reserve Bank of New York was proactive in communicating both the intent and the substance of the various policy initiatives it had undertaken. Trade volumes and risk appetite appeared low. Against this back-drop, the Committee chose to direct its efforts to three areas:
- Post-crisis market structure: Evaluating tools that exist within the foreign exchange market to help reduce systemic risk and considering changes to the market structure to further bolster the market’s resilience and efficiency;
- Risk measurement and management: Addressing the risk that arises from the limitations of conventional statistical frameworks as well as broader credit, settlement, liquidity, and reputational risks; and
- Foreign Exchange Committee products and communication: Reexamining the composition and role of the Committee itself within the broader foreign exchange industry.
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The global equity markets stabilized at the end of the first quarter of 2009, and the remainder of the year was characterized by equity rebounds, episodic signs of slow recovery, and an increasing focus on new proposed regulation. Globally, countries were at different stages of recovery; domestically, policy responses varied and reflected national concerns. The responses to quantitative easing, economic stimulus, extraordinary liquidity provision, and various regulatory agendas were difficult to assess.
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