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Recent research highlights that episodes of financial stress are more likely to be associated with deeper and longer downturns. This is particularly true for banking-related financial stress, and helps explain the severity of the recent crisis. Another factor that exacerbated the fallout from the recent crisis was the aggressive use of certain financial instruments. While derivatives can be effectively used for hedging purposes, use of these instruments for speculative gains with high leverage also allows for potentially unlimited losses. BIS Review 123/2009  1  The global recession was another distinctive feature of the recent crisis. The downturn in economic activity was virtually synchronized across both advanced and emerging economies. Increasing interdependence owing to the rapid pace of globalization, as well as the rising contribution of emerging economies to global growth is among the main factors behind the synchronous behavior of global economic activity. Taken together, this implies that there may be less of a role for exports during the recovery. Also the unprecedented fiscal and monetary policy initiatives implemented across major economies makes this crisis truly unique. The awareness regarding the threat to financial and economic stability has emerged across both advanced and emerging economies. To this end, policy dialogues – particularly those fostered during international forums – served to catalyze simultaneous fiscal stimulus packages across some of the largest advanced and emerging economies. On the monetary policy side, at first, many economies cut interest rates sharply with waning inflationary pressures.