1  4  See the memorandum dated October 9, 2008: Currency swap agreements and attempts to reinforce the foreign exchange reserves. BIS Review 22/2009  As I have mentioned, the Central Bank of Iceland kept close watch on the liquidity of the Icelandic banks throughout 2008, both by compiling data regularly and by meeting with senior executives in the banks. Among other things, the Central Bank tracked the banks’ liquidity virtually on a daily basis and kept abreast of their refinancing efforts and asset sales. It was common knowledge that one of the banks, Glitnir, had a large foreign loan payment coming up in mid-October. Unlike the other banks, Glitnir had not been active in creating a presence in the retail deposit market abroad, having chosen instead to bolster liquidity by selling assets. In mid-September, the Board of Governors of the Central Bank met with the Glitnir management and reviewed the bank’s liquidity outlook once again. At that time, the prospects for funding the October payment were good, and according to information presented to the Central Bank, Glitnir would be able to cover that payment with an asset sale that was virtually complete. It was then that American investment bank Lehman Brothers collapsed, starting a tremor that would shake financial markets all over the globe. In its Quarterly Review in December 2008, the Bank for International Settlements went so far as to say that, after the failure of Lehman Brothers, the global financial markets “seized up and entered a new and deeper state of crisis.
The muted course of inflation from the end of 2012 stems from the marked deterioration in the economic outlook for the euro area. Overall, despite the expansionary monetary policy, there are no signs of inflation risks over the forecast horizon. BIS central bankers’ speeches  3  4  BIS central bankers’ speeches