Evidence from Subprime Loans,” Quarterly Journal of Economics, forthcoming in Vol. 125, No. 1. Loutskina, E. and P. Strahan (2006), “Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Acceptance Rates,” mimeo, Darden Graduate School, University of Virginia. Figure 1 Countries experiencing drops in real GDP in the fourth quarter of 2008 (*) (percentage of total sample) 100  100  90  90  80  80  70  70  60  60  50  50  40  40  30  30  20  20  10  10  0  0  71  74  77  80  83  86  89  92  95  98  01  04  07  (*) Using the annualized quarterly GDP for a sample of 29 developed and emerging economies. Source: Central Bank of Chile. BIS Review 68/2009  7  Figure 2 GDP (annual change, percent) 10  10  8  8  6  6  4  4  2  2  0  0  -2  -2  -4  -4  -6  -6  70  75  80  Latin America (*)  85  90  95  World at PPP  00  05  10(f)  Developed ecoomies  (*) Simple average of annual GDP change in Argentina, Brazil, Colombia, Chile, Mexico, Peru and Venezuela. (f) Forecast.
Higher levels of capital will certainly have to be required in the future, particularly as banks gradually assume higher levels of risk. Such is the spirit of the Basel II standards, but this crisis has proved they do are not enough. It will be necessary to examine how capital requirements and accounting norms may have amplified the financial crisis, and what must be done to avoid the excessive procyclicality of the banking activity. Fortunately this has not been a problem in the financial systems of Colombia, Chile and the rest of the region, where regulatory schemes worked. Banks are adequately matched in terms of currencies, an aspect that used to be the Achilles heel of our banks. Central banks must strengthen and perfect the models with which they carry out their stress tests. They should take into account the interconnections within the financial system and detect vulnerabilities opportunely. We have seen how the U.S. investment banks, insurance companies and other non-banking agents of the financial system played a leading role in the origin and spread of the crisis, but were not at the heart of the banking supervision network. Of the many aspects that may be debated with respect of the financial system, there is one that should be singled out, especially to the extent that banking systems of emerging economies continue along the lines of financial innovation.