In particular, interest rates on safe assets fell since the build up in foreign assets were invested mainly in government bonds. 14 That both discouraged saving and boosted asset prices. In order to maintain their traditional returns, the private sector sought higher yielding strategies and were too ready to  11  IMF (2007) ‘Exchange rates and the adjustment of external imbalances’ IMF WEO April, Chapter 3. 12  Bernanke, B (2007) "Global Imbalances: Recent Developments and Prospects", speech delivered for the Bundesbank Lecture, Berlin, and Bernanke, B (2005) "The Global Savings Glut and the U.S. Current Account Deficit", speech delivered for the Sandridge Lecture at the Virginia Association of Economists. 13  A fall in desired investment (investment ‘strike’) in some countries also contributed to the decline in global real interest rates. For example, investment-GDP ratios fell sharply in the Newly Industrialised Countries in the wake of the east Asian crisis a decade ago. 14  For example FE Warnock and VC Warnock (2006) (‘International Capital Flows and US interest rates’, NBER Working Paper, 12560) estimate that foreign official flows reduced US 10-year Treasury nominal yields by about 100 basis points lower than otherwise in the year to June 2005. BIS Review 31/2008  5  believe that these could be attained through new products without running bigger risks. We are now dealing with the consequences of that mistake.
8  BIS Review 31/2008  Chart 4: Assets under management by SWFs relative to other investors and size of capital markets, 2006(a) EME  Siz e of e quity and bond marke ts  US Global Private equity Hedge Funds SWFs  Asse ts unde r manage me nt by type of inve stor  FX reserves (a) Insurance assets Mutual Funds Pension Funds 0  25  50  75  100  125  150  $ (a) FX reserve holdings and estimates of SWF assets under management are for 2007. Source: IMF GFSR September 2007, McKinsey and Co., International Financial Statistics, various estimates of SWF assets under management. Table 1: SWF capital injections in financial institutions since November 2007  Date of announcement  Sovereign Wealth Fund  Financial Institution  Amount $  26/11/2007  Abu Dhabi Investment Authority  Citigroup  7.5  10/12/2007  GIC - Singapore  UBS  9.8  19/12/2007  China Investment Corporation  Morgan Stanley  5.0  24/12/2007  Temasek - Singapore  Merrill Lynch  4.4  GIC - Singapore 15/01/2008  6.9 Citigroup  Kuwait Investment Authority  3.0  Korea Investment Corporation  2.0  15/01/2008  Merrill Lynch Kuwait Investment Authority  2.0  TOTAL  40.6  Source: Press releases, market reports.