FSB warns of financial stability challenges in repo markets

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Ref: 2/2026

• Repo markets are critical to the functioning of the global financial system and have been involved in several recent episodes of stress, including the March 2020 dash for cash and September 2022 gilt market episode.
• Report warns that leverage, demand and supply imbalances, and high levels of concentration within repo markets have the potential to create strains.
• Report calls on authorities to consider actions to close data gaps, strengthen surveillance, and address vulnerabilities around the build-up of liquidity imbalances and leverage.

The Financial Stability Board (FSB) today published a report on Vulnerabilities in Government Bond-backed Repo Markets.

Repo markets play an important role in facilitating the flow of cash and securities throughout the financial system. The report focuses on the repo markets backed by government bond collateral as this makes up the vast majority of collateral used by market participants. The report estimates that approximately $16 trillion in repo trades backed by government bonds were outstanding, representing around 80% of the total stock of all repo trades, at end-2024.

The report highlights how quickly repo markets were impacted in several recent episodes of market stress and warns that, given the importance of repo markets within the global financial system, it is critical to preserve their functionality, particularly during periods of stress.

The report identifies several vulnerabilities within repo markets that could pose risks to the broader financial system. First, repo markets can facilitate the build-up of leverage in the financial system. Approximately 70% of activity in the non-centrally cleared segment operates with zero haircuts and there are high levels of collateral rehypothecation. Second, demand and supply imbalances can arise quickly in periods of stress if repo lenders are unwilling or unable to provide funds to meet spikes in the demand for liquidity. Third, repo markets are highly concentrated along various dimensions. This concentration could lead to disruptions in the event of failures.

The core nature of repo markets may act as a conduit through several channels in spreading shocks across the financial system. Strains in repo and government bond markets may spill over into each other or across multiple jurisdictions, given the international nature of repo markets. If haircuts are insufficient, they further expose lenders to leveraged counterparties, amplifying risks across the financial system.

The report outlines several measures for authorities to consider in response to these vulnerabilities, including closing data gaps, strengthening surveillance capabilities, and addressing vulnerabilities related to liquidity imbalances and leverage by taking into account the FSB's recommendations on leverage in nonbank financial intermediation (NBFI) and Global Securities Financing Transactions exercise, as well as other relevant international standards.

Notes to editors

This report forms part of the FSB's work programme to enhance resilience in NBFI. Further details on this can be found in its latest progress report.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Andrew Bailey, Governor of the Bank of England. The FSB Secretariat is located in Basel, Switzerland and hosted by the Bank for International Settlements.