This summer’s Credit Wildfire would have been familiar to bankers and economists in the past. After nearly half a decade of fair market weather, portfolio credit risk vigilance was overrun by the quest to maximise yield and absolute returns.

Markets were not completely oblivious to mounting risks. The US housing bubble and subprime mortgage worries were widely advertised. Policymakers and investors frequently cited the “new capital market architecture” as a potential source of systemic risk. Credit risk premia struck cyclical troughs, with the extra yield demanded for holding emerging market and high-yield corporate debt over government bonds hitting all-time lows in May 2007.