Iceland’s overall level of debt has grown to an uncomfortable degree, and the CDS spreads of Icelandic banks have reached exceptional heights despite their excellent capital adequacy ratios, their steady history of profitability, and the improvements they have made in their funding procedures relative to, for example, two years ago. The present credit crunch and difficulties in the market are far from being uniquely Icelandic; they are a global phenomenon, and the recent turnaround seems to have taken everyone by surprise. When the current problems reared their heads in mid-2007, many  2  BIS Review 36/2008  clung to the hope that these headwinds would be short-lived and soon pacified. The general feeling seems to have been that there was still a glut of capital around the world, and that the temporary distrust in the market – even a sort of misunderstanding of the market – would vanish as soon as it became clear that the sub-prime mortgage market in the United States, despite its scope and size, was only a drop in the proverbial ocean of international finance, and that cheap capital must surely be unleashed anew and the Utopian dream would take the market in its arms once more. At which point, all would be happy once again and all unpleasantness a forgotten dream.
Fritz Zurbrügg: The financial crisis in its sixth year – an end in sight? Speech by Mr Fritz Zurbrügg, Member of the Governing Board of the Swiss National Bank, at the Money Market Event, Zurich, 21 March 2013. The complete speech can be found in German on the Swiss National Bank’s website (http://www.snb.ch/en)  *  *  *  In this, the sixth year of the financial crisis, the situation on the financial markets has eased considerably. Is what we're seeing the prospect of an end to the crisis, or is this just a flash in the pan? Measures by central banks made a major contribution to stabilising the financial sector. This sector, however, is just a part of the whole, and while its stability is a precondition for sustained global economic growth, it is by no means a guarantee. The positive mood in the financial markets and leading economic indicators raise hopes that a recovery is underway. If these hopes are to be realised, however, structural reforms need to be implemented. The three most significant challenges for the global economy are increasing the resilience of the financial sector, improving the flexibility of labour and goods markets (especially in Europe), and consolidating the public finances of the advanced economies. Progress has been made in all three areas. The way ahead, however, is still both long and difficult. Due to the relatively lengthy period of weak growth, there is considerable danger that reform fatigue might spread in those countries most severely affected.