Firstly, there was a lack of the necessary competence for managing credit in a responsible manner, both in the banks and in the supervision of the banks – largely due to the long period of  BIS Review 24/2006  3  regulation. Secondly, monetary policy and fiscal policy were conducted in a way that reinforced, rather than moderated, developments. I shall begin with the banks. Insight into the risks entailed in the new competitive situation was insufficient. The banks lacked the systems and processes needed to identify and measure credit risks, as well as to manage and prevent them. As you know, there have been rapid developments internationally with regard to awareness of these issues and knowledge of instruments to measure and manage risk. Even smaller banks now have comprehensive systems for assessing borrowers and can thereby avoid taking greater risks than they can afford. If the banks analysed credit risks at all then, they only looked at the risks from an individual company. They did not analyse risks in entire sectors or those related to macroeconomic developments. To a great extent, the banks’ credit assessment was also focussed on the value of the collateral rather than the borrowers’ ability to pay. With hindsight we can observe that not even collateral was analysed in a satisfactory manner. Sound international banking practice today says that credit should only be granted on the basis of the borrower’s ability to pay and the financial strength of the project.
Between 2007 – right before the last recession – and last year, employment grew by 10 percent in New York City, making it one of the best performing areas in the nation. In the Bronx, employment grew even faster, rising by more than 14 percent. While job creation in the Bronx has been quite broad-based, I would like to highlight two particular industries, each very different in nature, to illustrate the diversity of Bronx’s economy. Both health services and wholesale food distribution have been flourishing here. These sectors, on average, pay relatively well and both have been contributing strongly to 1  Jason Bram, Christopher Calabia, Tony Davis, Jacqueline Fenton, Claire Kramer Mills, Don Morgan, James Orr, Joseph Tracy and Luis Uranga assisted in preparing these remarks. BIS central bankers’ speeches  1  overall job creation and to the borough’s economic resurgence. By health services, I don’t just mean hospitals and clinics serving the local population. For example, Montefiore Medical Center is a nationally-ranked institution in a variety of specialties as well as a highly regarded teaching hospital. Additionally, the Albert Einstein College of Medicine is a graduate medical school and clinical research facility. And, of course, the Hunts Point Food Distribution Center houses institutions such as the Fulton Fish Market, which moved here from lower Manhattan about a decade ago. But, of course, these aren’t the only industries driving the Bronx economy.