Subprime loans were often packaged together with other loans. This resulted in complicated financial products that were sold on by the banks that were responsible for granting the loans to other banks and financial agents. The products were difficult to gain insight into and therefore often came to buyers who found it difficult to assess the risks they had purchased. When the credit losses increased there was uncertainty over where the losses would finally appear. This is in turn led to reluctance on the part of banks and other players to lend money to one another. The structured credit products were created to make the management of credit risks more efficient. At the same time, they in practice contributed to building up the risks that have made the financial crisis so severe. There have also been problems with credit rating agencies (such as Standard & Poor’s, Moody’s and Fitch). These agencies used similar methods for evaluating the structured products as those used for ordinary bonds. Many investors assumed that the credit ratings covered all of the risks, despite the fact that they really only focussed on the credit risk and ignored the liquidity risk, which can often be substantial for structured products. This meant that the credit ratings often underestimated the risks to which investors were exposed. This has greatly undermined the credibility of the credit rating agencies and they have a tough job ahead of them to build up this confidence once again. The supervision of the financial markets has not been effective enough either.

Since then, several decisions on measures to stimulate the economy have been taken in the United States and in European countries, but also, for example, in China. Despite these measures, the financial markets are still functioning much less efficiently than normal. Ongoing measures are therefore required to improve the functioning of the financial system. There is a need to reform the global financial system in order to reduce the likelihood of new financial crises. It is probable that the problems on the financial markets have been aggravated by weaknesses in regulation and supervision. There is therefore room for improvement. However, the changes that are made should be carefully prepared and fully justified so that regulations are not introduced that will have more negative than positive consequences. Allow me to mention a few examples of possible improvements. In the first place, we need to develop the supervision of the financial system. The basic problem is that the financial markets are international while supervision largely takes place at the national level. In Europe, there is therefore a need to strengthen the coordination between supervisory authorities in different countries. Work on this is already underway within the European Commission and in various committees. Supervision must also focus to a greater degree on macroeconomic problems. I personally believe that in the long run we should set up a European supervisory authority with responsibility for supervision of the financial institutions and markets across Europe. This must then cooperate with financial supervisory authorities in Europe and other parts of the world.