, the 10 largest had much riskier balance sheets at the start of the crisis. the much higher leverage and greater risk exposure of the 10 largest firms clearly indicates that they had a significant funding cost advantage over all other organizations, and their creditors believed they had less exposure to losses. this increase in financial sector leverage fueled a significant growth of debt in the non financial sector of the economy and, as it turned out, led to a general excess of credit growth over the past 10 years ( chart 5 ). bank lending rose from 39 percent of gross domestic product ( gdp ) in 2004 to 47 percent by the end of 2007, and that figure excludes the rapid growth in credit from the shadow banking sector and the gses, fannie mae and freddie mac. while bank loans relative to gdp have declined since 2008, it remains well above the long - term trend. the increase in leverage and debt was most prominent in the consumer sector. consumer debt as a percent of personal income generally has been rising since the 1950s ( chart 6 ). however, it began a rapid acceleration in 2000, rising from 76 percent to 110 percent by the end of 2007. non financial business borrowing relative to nominal gdp also has followed an upward trend since the 1950s ( chart 7 ). during this most recent expansion, it has increased from 77 percent in 2004 to 89 percent at the end of 2007. finally, and no less importantly, the federal government deficit is at record levels and the current trend is unsustainable ( chart 8 ). the increase over the past two years is due partly to the automatic stabilizers that come in to use during a recession and to additional fiscal actions taken to restart the economy. these temporary actions will add to an already heavy burden of various programs that have sharpened the upward trend with no obvious end in sight. effects given the levels of leverage in the economy, no one should have been surprised at the collapse triggered by the housing bubble bursting in 2006 and the rise in subprime mortgage defaults in 2007. when housing prices fell, many discovered that they had taken on more financial risk than they previously assumed and more than their capital levels could support. the institutions with the highest leverage suffered the most, and, as it turned out, these were some of the largest institutions in the world. financial panic quickly followed. what started as a wall street panic soon created regional distress and finally main street suffering. and just like the largest institutions, the regional and community banks that were most leveraged,

scale ”. i also invite the ecb and ec to explore the possibility of adopting a “ party ” treatment for the entire see region, by adopting a specific program for a specific group of countries. the process of mergers and acquisitions has incorporated financial system of the region into the bigger european market. this market driven, business initiative of the financial community, calls for institutional integration as well. bringing central banks of the region into the appropriate european structures has the potential to minimize the probability of dangerous drifting apart into worthless initiatives and create positive energy. i encourage foreign partners as well as donor agencies to adopt the same logic of coordination in the process of the compilation and implementation of technical assistance in areas of integration, institutional building, and financial stability process. this approach and will benefit the region in several ways but most importantly it will avoid major economic and social disparities between our economies, which in the long run have the potential to develop into serious threats to stability. on the other hand, several differences emerge in certain areas of developments. yet, this provides further room for cooperation. it is a fact that our economies have adopted diverse approaches toward establishing macroeconomic and financial stability. we are at different stages of integration. it is probably due to these diverse characteristics that contagion has not been a prevailing phenomenon in see region. along the path of transition our economies have encountered distinct problems in different moments. just to point out a few examples : • credit has penetrated deep in the culture of some economies in the region while it still remains a fast growing new phenomenon in a few others ; • some of us have experienced high capital inflows while the others expect to have in the future ; • some pegged their currencies to euro ; the others have not. for the rest of the region it is very important to know what triggered such different choices. how did authorities respond to such problems, what to expect, how to react? due to these different paths that we have taken and nature of the problems that each economy has encountered, we are positioned in different parts of the learning curve. there is a great deal of learning by doing experience we have accumulated during this period of existence, and i believe that this knowledge must be shared. c. common achievements we have succeeded to establish a network of communication with all central banks in the region among governors. i have noticed that they have always expressed their enthusiasm to intensify regional cooperation in this context. i am also happy to say that during my contacts with respective international