Capital adequacy ratio  Capital adequacy and funding duration for some selected banks in March 2008 12 Kaupthing  11,5 11  Glitnir  10,5  Landsbanki Handelsbanken  10 DnB NOR 9,5 Intesa Sanpaolo  Swedbank 9 8,5 1  2  3  4  5 6 7 8 9 Remaining time to maturity of issued securities  Sources: Bloomberg, Riksbank. BIS Review 9/2010  9  A great deal of value is lost at the very moment when banks stop being going concerns. However, low estimated recovery rates after the banks’ collapse seem to indicate the existence of an underlying solvency problem. It also raises questions about the quality of accounting. This is one of the mysteries that still wait to be solved. My list of causes for the collapse of the Icelandic banks is the following: •  Large foreign-currency balance sheets with significant maturity mismatches but without a LOLR. •  Size relative to the home base (country and currency). •  Fatal flaws in the EU financial architecture. •  Bad and non-cooperative crisis management across interested jurisdictions. But there were also triggers and contributing factors: •  The international financial crisis and all the usual suspects that have been named in relation to it, including incentive systems, regulation and supervision. •  Flaws in business models and risk management. •  Iceland’s large macroeconomic imbalances. •  Domino vulnerabilities in Iceland’s financial sector (e.g., cross-ownership, connected lending, large exposures across institutions). •  Bad governance and accounting?
The extension also expands the FLS to cover lending to financial leasing and factoring corporations (which are a source of credit for SMEs). We have been clear that the design of the extended FLS particularly encourages lending to SME’s in determining access to the FLS. Incentives to lend to SME’s are therefore in place,  BIS central bankers’ speeches  3  no doubt about that. But we cannot promise that the results will follow almost as night follows day, because there is more to it than that. Let me end, by advertising a piece of work done by your chairman-elect, chairing a group that recently produced a report on SME lending in Northern Ireland. In that report, Kate and her colleagues point to structural market failures affecting the supply of finance to SMEs, which mainly relate to imperfect or asymmetric information, and which tend to be exacerbated in times of heighted economic uncertainty and risk aversion. Likewise, the report points to information failures on the demand side for businesses seeking finance. The report goes on to note that over the last five years there has been a market correction as banks have moved away from a lending approach based on property as security to one that is more based on evidence of a business plan that indicates returns to the firm that will repay borrowing.