Needless to say, recent market volatility and credit concerns have exposed central banks to the vulnerabilities and risks which attach to such investment decisions. Therefore, the importance of risk management in reserves management has increased exponentially. Managers of foreign exchange reserves within central banks have become much more risk-averse since the global credit squeeze started, with safe assets being back in favour.
The need for maintenance of the U.S. bank regulatory and supervisory framework has come into stark relief with the failures of two large banks in March, followed by a third at the beginning of May. The future and current policy choices made in responding to these failures will have important consequences for the U.S. banking system.