Keynote address by Már Gudmundsson, Deputy Head of the Monetary and Economic Department of the BIS, at the Financial Technology Congress 2008, Boston, 23 September 2008
The current financial crisis was triggered by increasing defaults on subprime mortgages and the turn of the housing cycle in the United States. However, it had deeper causes in the under-pricing of risk and debt accumulation in several countries during the period of low real interest rates and easy access to credit. The financial industry has responded by raising capital and reducing leverage. The public sector has provided massive liquidity support, injected capital and improved deposit insurance. Looking further ahead, wide-ranging reforms are underway aimed at increasing market and institutional resilience. It is an open question how wide the financial safety net will be cast. The future financial sector can be expected to be smaller and operate with higher capital and liquidity buffers than before the crisis.