2  BIS Review 74/2008  But the U.S. economy and economies worldwide are still in the process of adjusting to the aftermath of rapid asset price growth and unsustainably low risk premiums. This process will take time. As we continue to work with other central banks to ease the adjustment now under way in the U.S. economy and globally, we are working to make the financial system more resilient and to improve its capacity to deal with future crises. We are working closely with the Securities and Exchange Commission (SEC), with banking supervisors in the United States and the other major economies, and with the U.S. Treasury to strengthen the financial foundation of the major investment and commercial banks. We have encouraged a significant increase in the quality of public disclosure. We have supported efforts that have brought a very substantial amount of new equity capital into many financial institutions. These efforts will help mitigate the risk of a deeper credit crunch. And even as the Federal Reserve has worked to mitigate the liquidity pressures in markets by implementing a new set of lending facilities, we have worked with the SEC and others to ensure that the major institutions are strengthening their liquidity positions and funding strategies. We are also initiating important steps to strengthen the financial infrastructure.
The combined balance sheets of the then five major investment banks totaled $ trillion. In comparison, the total assets of the top five bank holding companies in the United States at that point were just over $ trillion, and total assets of the entire banking system were about $ trillion. This parallel system financed some of these very assets on a very short-term basis in the bilateral or triparty repo markets. As the volume of activity in repo markets grew, the variety  BIS Review 74/2008  1  of assets financed in this manner expanded beyond the most highly liquid securities to include less liquid securities, as well. Nonetheless, these assets were assumed to be readily sellable at fair values, in part because assets with similar credit ratings had generally been tradable during past periods of financial stress. And the liquidity supporting them was assumed to be continuous and essentially frictionless, because it had been so for a long time. The scale of long-term risky and relatively illiquid assets financed by very short-term liabilities made many of the vehicles and institutions in this parallel financial system vulnerable to a classic type of run, but without the protections such as deposit insurance that the banking system has in place to reduce such risks.