This is now clear in retrospect, but even without the benefit of hindsight several signals – the sharp decline in the US household saving rate; the widening global imbalances and the accumulation of huge official reserves; the enduringly low levels of long-term interest rates and risk premiums and implied volatility; the continuous expansion in global credit; the succession of booms in financial and real asset prices – should have alerted policymakers that those policies were feeding a set of disequilibria that could not be sustained indefinitely, but whose correction was nowhere in sight.
Firms that operated with the two main ingredients for solid governance and controls – thorough information and strong incentives – have come through this tumultuous period in better condition. Lastly, supervisors' comparative reviews also identified valuation practices as critical.