6  BIS Review 81/2010  announcement had to direct thousands of institutions in the appropriate direction on equal terms, including a majority that had not been misbehaving in the run-up to the crisis. In particular, stronger institutions might view their agreement to use the guarantees and issue equity to the U.S. Treasury as stigmatizing and make them more vulnerable to runs. The solution was to obtain agreement from nine systemically important institutions to participate at the start of the time-out on the same terms available to thousands of other eligible financial institutions. The time-out announced on October 14 was a critical success in terms of stopping the run on the global financial system, but it could not and did not address all the aspects of the crisis. The global propagation of the financial shock had already triggered an economic slowdown at least as abrupt as any during the Great Depression period. The underlying question was now how strong the adverse feedback loop would be between the rapidly deteriorating real economy and the condition of the banking sector. One clear lesson from this phase was the need for formal coordination among the diverse authorities in the U.S. in establishing and maintaining financial stability. Another lesson that emerged was that some forms of regulatory and accounting capital were very weak defenses against the fear of insolvency. Both lessons are informing the ongoing work of regulatory reform and of enhancing the resiliency of the financial system through stronger capital and liquidity requirements.
For those of us who manage government funds, we also owe a duty of care and responsibility to future generations – to sustain decent returns at an acceptable level of risk in an era of subpar growth. BIS central bankers’ speeches  5  A wise man once said, “In investing money, the amount of interest you want should depend on whether you want to eat well or sleep well.” I wish you fruitful discussions over the next two days as you explore how to do both. Thank you. 6  BIS central bankers’ speeches