On balance, despite the ongoing financial turmoil, I would argue that financial integration has had a stabilising influence on the global financial system for the reasons just mentioned. 18 If, however, risk assessment and management is inadequate,  16  See Kose, Prasad and Terrones (2005, 2006). 17  The financial market liquidity indicator is constructed to gauge market tightness, depth and resiliency, and liquidity risk premia. 18  The available empirical evidence on how measured financial openness affected the severity of banking crises is somewhat inconclusive. The finance literature argues for a joint consideration of efficiency and stability issues, see Ferguson et al. (2007), ch. 6.3 for references to the literature. BIS Review 9/2008  7  asset valuation is difficult and highly uncertain, and incentives are distorted, the risks to financial stability could increase. The current financial turmoil provides a clear example of how a shock to a relatively small segment of a national financial market can spread globally across borders and across other markets. As early as 2005, US sub-prime loan delinquencies started to rise. Consequently the value of credit products based on sub-prime mortgages rated lower than AA started falling.
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