The financial market turmoil has been keeping the world on tenterhooks for more than a year now. After a long period of stability, 2007 marked a turning point, with the start of turbulence in financial markets that will be remembered for a long time. Central banks, supervisory authorities and governments worldwide have responded and continue to respond decisively to the emerging vulnerabilities and materialisation of risks, so as to restore stability and conditions conducive to growth as soon as possible.

The root cause of the crisis was a widespread undervaluation of risk. This included an underpricing of the unit of risk and an underassessment of the quantity of risk that financial operators took upon themselves. Several policymakers had indicated during 2006 and early 2007 that market participants needed to prepare for a significant correction. As chairman of the global economy meetings of central bank governors, I myself reported my colleagues’ sentiments on this matter. At the same time, several financial stability reports, including from the European Central Bank, the Bank for International Settlements, the Financial Stability Forum and other organisations, had analysed vulnerabilities and warned of the emerging weaknesses.