Circumstances proved very different in this episode. For one, the rise of the shadow banking system meant that a preponderance of financial intermediation in the United States was being performed by non-depository institutions that funded themselves in wholesale rather than retail markets. Further, traditional discount window loans have always been vulnerable to stigma – that is, if a bank borrows from the central bank it runs the risk that markets and counterparties may infer that it is closer to insolvency than was previously thought. The potential for stigma to damage the effectiveness of this crucial backstop facility explains why the identity of discount window borrowers is not disclosed by the Federal Reserve. Indeed, we saw early in this crisis that many depository institutions proved unwilling to take the risk of possible stigma, the result of which was an increasingly severe impairment to the flow of liquidity to the rest of the financial system. In late August 2007, a new facility was designed to help overcome stigma through the use of an auction mechanism. As the market calmed in September to late October, this facility was shelved but was ultimately introduced on December 12, 2007, as the Term Auction Facility in a coordinated announcement with other central banks. This phase has some obvious lessons for financial stability.   Financial products that are new and complex should be treated with caution. Regulators, credit rating agencies and market participants all have limited ability to evaluate the properties of such complex products at their inception.

Zamani Abdul Ghani: Malaysia – seizing the opportunity to evolve Opening remarks by Mr Zamani Abdul Ghani, Deputy Governor of the Central Bank of Malaysia, at the Seminar on Financing for Overseas Project, Kuala Lumpur, 14 January 2010. *  *  *  I am pleased to be invited today to officiate this Seminar on Financing for Overseas Project. On behalf of Bank Negara Malaysia, I wish to thank and congratulate the EXIM Bank, the ICD and the CIDB for their efforts in organizing this important and invaluable Seminar. The continuous collaboration among Malaysian private and public related organizations with the IDB and its related organizations demonstrate the solidarity of the Muslim Ummah and the community at large towards achieving a strong and sustainable economic development. This also reflects the growing importance of cross border trade and investment among the OIC member countries. We, at Bank Negara Malaysia, are pleased to note that over 200 participants from more than 100 companies in Malaysia are participating in this Seminar. Today’s Seminar which brings together participants in the related industries, not only provide information on the business opportunities abroad, but also serves as an excellent platform to establish new networking links as well as sharing of innovative ideas and invaluable experiences. Malaysia has always accorded and will continue to accord a high priority on enhancing collaboration with the OIC member countries towards fostering intra-OIC trade and investment. Realizing the large business opportunities in the OIC countries, Malaysia entered into an MoU with the IDB in 2004.