"While there remain downside risks, the most likely path ahead is that confidence and risk appetite will return gradually in the coming months." That is the view of John Gieve, deputy governor of the Bank of England, on what will now happen in credit markets. But while the Bank's Financial Stability Report may be right not to expect further spectacular crashes and liquidity crises - in that sense the worst may be over - it does not follow that markets will soon return to normal.

The Bank observes that bond prices imply unprecedented levels of default on subprime mortgages and unprecedentedly low levels of recovery from seizing properties and auctioning them off. It argues that predictions of ultimate losses from the credit squeeze based on these prices - such as the $945bn estimate by the International Monetary Fund - are therefore overstated. One implication is that, if markets recover, some banks that have aggressively written down assets may be able to write them back.