The FSB 2026 report in question is « Vulnerabilities in Government Bond-backed Repo Markets, » published by the Financial Stability Board (FSB) on February 4, 2026

It forms part of the FSB’s broader work on non-bank financial intermediation (NBFI) resilience and assesses structural risks in the repo (repurchase agreement) markets backed by government bonds—the dominant segment of the global repo market.

Market Size and Composition (as of end-2024)

• Government bond-backed repo outstanding totaled approximately $16 trillion, representing roughly 80% of all repo outstanding globally.
• This figure was up about 20% since end-2022.
• Regional breakdown:
  • United States: ~60% (largest share).
  • United Kingdom and euro area: ~15% each.
  • Japan: ~10%.
• About 40% of outstanding repo is centrally cleared through central counterparties (CCPs).
• Roughly 50% of the stock is overnight tenor (varies by jurisdiction, with higher overnight shares in the US, India, and Mexico).
• Significant cross-border activity: ~15% involves foreign government bonds; ~40% of repo is between counterparties in different jurisdictions.
• Currency composition is heavily USD-denominated (~66%).

The report notes that repo markets are critical for short-term funding, liquidity management, collateral reuse, and supporting government bond liquidity and central bank operations.

Key Vulnerabilities Identified

The FSB highlights three interlinked structural vulnerabilities that could amplify stress and spread to the broader financial system:

1. Leverage build-up: Low haircuts (including ~70% of non-centrally cleared repo with zero haircuts) and high collateral rehypothecation (reuse rates of 50–90% in some markets) enable significant leverage. Hedge funds alone had ~$3 trillion in cash borrowing via repo (about 25% of their assets). This can amplify positions in strategies like Treasury basis trades.
2. Demand/supply imbalances in stress: Sudden spikes in liquidity demand (e.g., from margin calls or volatility) can be met with reduced supply if lenders (such as money market funds) pull back due to risk aversion, window dressing, or redemptions. Procyclical margins and haircuts can worsen spirals.
3. High concentrations: Along borrowers (e.g., hedge funds), lenders (e.g., MMFs), intermediaries (dealers/banks), and CCPs/custodians. Top intermediaries often handle 40–70% of activity in key jurisdictions, raising risks of operational or financial disruption from a single failure.

These vulnerabilities were evident in past episodes, including:

• The March 2020 “dash for cash” (COVID-related liquidity crunch and hedge fund unwinds).
• The September 2022 UK gilt market stress (LDI pension fund margin calls leading to forced sales).
• Euro area volatility in 2022 and other events.

Contagion Channels

Strains in repo markets can spill over via:

• Fire sales of government bonds (pressuring sovereign debt prices and liquidity).
• Credit risk to lenders/counterparties (especially with zero haircuts).
• Cross-border and cross-market transmission (repo–government bond linkages and international flows).

Policy Recommendations and Next Steps

The report does not propose new binding rules but urges authorities to:

• Close data gaps by leveraging the FSB’s Global Securities Financing Transactions (SFT) data collection exercise for better surveillance.
• Strengthen monitoring using vulnerability metrics (e.g., on haircuts, concentrations, and leverage).
• Apply existing FSB tools, including 2025 recommendations on NBFI leverage, liquidity preparedness for margin/collateral calls, and standards for central clearing and securities financing.
• Consider measures like minimum haircuts for non-cleared repo, concentration add-ons, and expanded central clearing to mitigate risks while preserving market functionality during stress. fsb.org

Context and Relevance

This report was released as part of the FSB’s 2026 work programme (published the day before on February 3). It underscores why institutions are exploring innovations like on-chain tokenization of repo (as referenced in related discussions): the massive scale ($16T) and identified frictions (e.g., counterparty risks, leverage, settlement inefficiencies) make efficiency gains and better transparency potentially valuable, though the FSB focuses on regulatory and supervisory responses rather than technology.

The full report (67 pages) is available on the FSB website, along with the press release. It draws on member surveys, industry outreach, academic research, and historical data. Data gaps (e.g., inconsistent haircut reporting, cross-border granularity) are explicitly flagged as a priority for future work.