2  BIS Review 117/2010  incomplete, with banks retaining large quantities of supposedly risk-free leveraged super senior tranches of structured products. These exposures were compounded by the rapid expansion of banks into over-the-counter derivative products. In essence, banks wrote a series of large out-of-the-money options in markets such as those for credit default swaps.
4 As credit standards deteriorated, the tail risks embedded in these strategies became fatter. With pricing and risk management lagging reality, there was a widespread misallocation of capital. The magnitude of these developments was remarkable. In the final years of the boom, when complacency about liquidity reached its zenith, the scale of shadow banking activity exploded.