The paradox of the present scenario is that the banking system, whose objectives should be to intermediate credits and hedge against risks, seemingly concealed the risks in a complex web of derivatives (and notes) thanks to regulations that didn't measure up to the challenge. Another aggravating circumstance is the transition of the bank-based financial system to a system based on tradable, short-run-debt certificates. This scheme opens the door to a bank run that differs from the old ones where customers stood in line to withdraw their deposits. The recent incorporation of safety-net policies for institutions (Primary Dealer Lending and bankarization of investment banks) and securities (guarantees to Money Market Mutual Funds), are the offspring of this change in the financial system. The lessons learned in the 1920s, which led to the creation of the Fed is being "relearned" now. It is worth recalling that before the Fed came to life, the United States endured a major banking system crisis every three years (Gorton, 1988). World inflation and growth China’s sustained growth for many years already has been at the core of the world economy’s evolution. The Chinese incorporation to the global world was great news, because it brought with it economic growth and low prices. The continuous migration of millions of people from the countryside to the city boosted world output. They not only could produce at lower prices but they also were the cause of the increase in savings in that country.
5  For example, O’Hara (2004). 4  BIS central bankers’ speeches  Frictions in pricing arise from the process of matching buyers and sellers. Here, the role of market-makers is key. The market-maker faces two types of problem. One is an inventorymanagement problem – how much stock to hold and at what price to buy and sell. The market-maker earns a bid-ask spread in return for solving this problem since they bear the risk that their inventory loses value. 6 Market-makers face a second, information-management problem. This arises from the possibility of trading with someone better informed about true prices than themselves – an adverse selection risk. Again, the market-maker earns a bid-ask spread to protect against this informational risk. 7 The bid-ask spread, then, is the market-makers’ insurance premium. It provides protection against risks from a depreciating or mis-priced inventory. As such, it also proxies the “liquidity” of the market – that is, its ability to absorb buy and sell orders and execute them without an impact on price. A wider bid-ask spread implies greater risk in the sense of the market’s ability to absorb volume without affecting prices. This basic framework can be used to assess the impact of the changing trading topology on systemic risk, moving from analysing market microstructure to market macrostructure. Take the effects of fragmentation. That heightens competition among trading platforms, offering differing execution options and wider access to participants. This would tend to attract liquidity providers, including cross-market arbitraging HFT.