To a large extent, such competition has been the outgrowth of a fundamental change in the general approach to mortgage lending. Traditionally, mortgage financing was approached as a credit rationing process. In contrast, today banks compete aggressively for borrowers by packaging highly competitive spread of home loan products to meet different needs of borrowers. In the more developed markets, this has manifested in more prevalent sales of non-traditional mortgage products to sub-prime borrowers as competition for borrowers has intensified. The rise of investment property has also been striking, with significant growth in this loan class observed in Malaysia relative to owner occupiers. In this environment, it is important that banks develop a more complete understanding of the full spectrum of risks presented in this business. The dangers of complacency have been  BIS Review 3/2010  1  clearly demonstrated in the devastating consequences of this global financial crisis. Basic failures in risk management and oversight have been cited as a key characteristic of financial institutions that suffered large losses during the crisis. In many instances, boards and senior management of these institutions neglected to understand and control their institutions’ balance sheet growth and the risks that they were exposed to. Some institutions in fact made deliberate strategic decisions to retain large exposures to financial instruments linked to subprime assets but failed to take appropriate measures to control or mitigate those risks.

6  Admittedly, some new technological developments (such as digitalisation, robotics and artificial intelligence) could be a source of faster productivity growth. And plausibly, population ageing may actually promote automation. But eventually automation can only progress insofar as new ideas (so-called product innovation) emerge. Whatever the net effect on productivity, with the evidence we now have on the association between demography and growth in advanced economies in recent decades, we should not rule out the possibility that population ageing might significantly decrease potential output growth. Given population projections, extrapolating the observed association into the coming decades yields declines of output growth of about 1 percentage point (pp) until 2030, and close to 2 pp in countries where the demographic transition will accelerate in the years ahead. And recent observations on productivity growth are not very encouraging. Whatever the measurement used (either labour productivity or total factor productivity) there is a clear productivity slowdown in most advanced economies during the last two decades, even though total factor productivity growth has recovered somewhat in the last one. There is some discussion about to what extent this global productivity trend is due either to missmeasurement, to the delay in the diffusion of the new technologies and of their potential effects, or to more fundamental reasons, such as a slower innovation rate. Nevertheless, we cannot take for granted that productivity growth could compensate for the negative effects of population ageing on potential growth. 7  Population ageing may also affect trend inflation.