4  Special Drawing Rights. 6  BIS Review 42/2009  exploitation of petroleum resources. Global capital markets give us an opportunity to distribute the spending of these revenues across current and future generations. There are no other options for investing this wealth that could have shielded the Fund from the global economic downturn. Other government assets, such as shareholdings in domestic industries and subsea resources in the North Sea have also fallen sharply in value, at market prices. Real household housing wealth has also declined since summer of 2007 to the end of 2008. The return on the Government Pension Fund – Global generated in 2008 was 3.4 per cent lower than that on the benchmark portfolio. This is considerably lower than expected in the light of our investment strategy, which features a large number of small and independent positions. This performance was due primarily to the investments in the fixed income portfolio, which proved to be less well-diversified than expected, and to investments that exposed us to changes in liquidity premiums. The Fund currently has extensive holdings of bonds, that despite high ratings, are difficult to trade in today’s market. Realised losses have been limited. The flipside of large book losses is that this portfolio has a high yield, reflecting not only the increase in credit risk but also high liquidity premiums and fears and uncertainty in the market. History has seen a number of deep financial crises, and market conditions will return to normal in time.
This does not mean that we can rest; banks are not immune from any of the factors that I have just described. Indeed, if we were to look closely at bank failures large and small over the years, I believe we would find that poor corporate governance lay at the heart of many of these failures. Why should we have higher expectations for the governance of banks than we have for other firms? Fundamentally, because banks must act in a way that promotes “confidence” to the public and the markets in general and, more specifically, to their primary stakeholders. Banks play a crucial role in the flow of capital within an economy and are charged with a special public trust to safeguard customers’ wealth. A stable and healthy banking system is critical to the long-term growth of an economy. Banking supervisors have long recognised the importance of good governance; supervision can not function properly if sound corporate governance is not in place. Experience underscores the need to have appropriate levels of accountability as well as sufficient checks and balances. For banking supervisors, although the range of topics that corporate governance may encompass is quite wide, the focus is mainly on those elements that relate to the manner in which the business and affairs of an organization are governed by its board and managers.