This has reduced their capacity and willingness to provide new loans, and a number of the largest financial institutions in both the US and Europe have had to raise substantial new capital. Crises and turbulence are built into the workings of the market. The search for yield and market shares may at times become too intense. One lesson from the turbulence so far is that developments in the financial system, with new financial products combined with a possible lag in legislation and regulation, have rendered the financial system vulnerable. The turbulence has also shown that in a situation of widespread uncertainty and turmoil, different segments of the financial market are interconnected, which is not evident under normal circumstances. An important aspect of the current turbulence is the sharp increase in the price of interbank liquidity. History shows that there have been periods where the spread between banks’ funding costs in money markets and risk-free interest rates has increased sharply, but these periods have been relatively short. The persistence of the wide spreads today suggests that banks’ confidence in other banks’ credit quality has been reduced. This would also indicate that banks prefer to hold substantial liquidity in order to limit their own funding costs. The persistently wide spreads is also an indication that this episode of turbulence is not yet a closed chapter. 2  BIS Review 45/2008  Orientation of monetary policy Monetary policy in Norway is oriented towards annual consumer price inflation of close to 2.5 per cent over time.
Experience has also shown that financial crisis and economic recession entrenches the cycle of poverty. During a financial crisis, the poor lose their income by several times more compared with the average household. We saw this happen during the recent Global Financial Crisis, and we also saw how many that were displaced suffered "hysteresis" thus deeply affecting their income prospects. We also risk facing a severe setback in our fight against poverty. In the more recent years, the international community has accorded greater attention to addressing this agenda and to achieving more balanced and inclusive growth. Malaysia, while achieving growth and progress since the 1960s has always given attention for it to be a shared prosperity. Given the role of the financial system in facilitating this, Bank Negara Malaysia has always given priority to the financial inclusion agenda to not only bring the underserved segments of society into the financial mainstream but to promote a more effective participation in the financial system which will in turn strengthen the potential for enhancing economic well-being. Before I conclude my remarks, allow me to congratulate the World Bank Group on its many achievements realised in the Asian Region. Bank Negara Malaysia is pleased to partner the World Bank Group in its initiatives in the region.