W hat had initially been perceived as an interesting but minor event in the mortgage market has become a catalyst affecting all markets. It raises questions about the exposure of market participants to risk, and the wisdom of aspects of the Basel II accords on bank capitalisation.

Investors in two hedge funds managed by US investment bank Bear Stearnswere wiped out in June, which was surprising given that the securities in the funds were rated either AAA - the same level of safety as US Treasury bonds - or one notch lower at AA. Within a couple of months, $1.5bn of capital was lost in only two funds.