People did not know how – or were unwilling – to ask whether the rules provided adequate safeguards in the new circumstances. Behind this passiveness were many quite understandable factors. One was supervisors’ uncertainty of their legal powers to intervene in the operations of financial institutions on a discretionary basis.
2  BIS Review 23/2010  Macroeconomic imbalances, the increased complexity of the financial innovations and weaker transparency, disincentives and agency problems, including a permissive supervisory environment, together created an explosive situation that eventually set off the financial crisis. The ultimate trigger was the reversal of the uptrend in US housing prices in 2006.