Jan F Qvigstad: Could the financial crisis have been avoided? Challenges to international cooperation and conflict Speech by Mr Jan F Qvigstad, Deputy Governor of Norges Bank (Central Bank of Norway), at a seminar on the financial crisis arranged by Prio, Oslo, 8 December 2009. *  *  *  What happened? Confidence between financial market participants collapsed in September last year following the Lehman Brothers bankruptcy. The price of credit jumped up both in money and bond markets. Equity prices declined, increasing the cost of raising new equity capital. The authorities worldwide responded by supplying substantial liquidity to banks and central bank key rates were reduced. In many countries, the authorities provided extraordinary loans or took over banks to maintain confidence in institutions and market activity. In some countries, the authorities have purchased securities to bring down long-term interest rates. Stimulus has also been provided through increased public sector demand and government budget deficits have grown to unprecedented levels in some countries. The reaction of households and businesses was to increase saving and private sector demand declined. Credit standards were tightened and risk premiums soared. The drop in demand rapidly translated into a contraction in trade and output. In spring 2009, world trade was around 20 per cent below the level prevailing one year earlier. In many countries, the total value of goods and services production (GDP) declined over several consecutive quarters. Countries that were heavily reliant on exports of manufactured goods were particularly hard hit.
In this context, the SNB fully supports FINMA’s efforts to ensure that risk-taking by individual banks is reduced or backed by specific capital charges whenever the risk exposure is deemed exceptionally large by historical or industry standards. In parallel with these measures, the SNB will continue to monitor developments on the mortgage and real estate markets closely, and will reassess the need for an adjustment to the CCB on a regular basis. BIS central bankers’ speeches  3