The Financial Stability Board (FSB) published a report on vulnerabilities in government bond-backed repo markets, warning that leverage, liquidity imbalances and market concentration can create strains that spill over to the wider financial system, especially during periods of stress. Government bond collateral accounts for the vast majority of repo activity, with the report estimating around USD 16 trillion of government bond-backed repo trades outstanding at end-2024, representing about 80% of the total stock of all repo trades. Identified vulnerabilities include the build-up of leverage, including in the non-centrally cleared segment where around 70% of activity operates with zero haircuts alongside high levels of collateral rehypothecation, rapid demand and supply imbalances when lenders cannot or will not meet spikes in liquidity demand, and high concentration that could amplify disruptions if key participants fail. The report also highlights cross-border transmission channels and the risk that insufficient haircuts expose lenders to leveraged counterparties. As potential responses, the report calls on authorities to consider closing data gaps, strengthening surveillance capabilities, and addressing liquidity imbalance and leverage risks, taking into account the FSB’s recommendations on leverage in nonbank financial intermediation and its Global Securities Financing Transactions work, alongside other relevant international standards.

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