The coincidence of greater levels of deregulation and integration of capital markets implied that if a major problem arose it was more likely to spread quickly across borders. This environment encouraged an increase in risk-taking as many players “hunted for yield. Interestingly, the composition of investors also changed.
Measuring risk where credit can be sliced and diced The widespread use of structured credits effectively lowered the compensation for bearing credit risk and market risk to historically low levels. It is during this time that a market for bearing risk through complex structures of credit derivatives flourished. There were a few warning signals particularly about hedge funds, but not many warnings about securitisation.