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it illuminated the adverse incentives that had been allowed to develop in the distribution chain for credit products including the strong incentives for originators to put quantity above quality, for the rating agencies to expand their scope as widely as possible, and for banks to use off - balance - sheet vehicles to finance structured credits. it may also reveal some flaws in the compensation schemes in banks. in some cases these incentives arose despite regulation, in others they were the consequence of faults in the regulatory system. finally it showed again how measures of risk used by companies and regulators can be pro - cyclical, encouraging more risk taking at the top of the cycle and potentially exacerbating the downswing. in the last few weeks, markets have been calmer. liquidity pressures in short - term funding markets have eased, helped in part by the co - ordinated action by central banks to address elevated funding rates over the year end ( chart 3 ). and, as losses have been declared it has proved possible for a number of firms such as ubs, merrill lynch and citigroup to attract new capital including from sovereign wealth funds. it is too early to declare the problem solved. the longer term bank funding markets remain relatively illiquid, many securitisation markets remain effectively closed ( chart 4 ), and general market sentiment remains fragile. only a part of the total losses on sub - prime have yet been declared and not all the questions about the future of sivs or the capitalisation of monoline insurers have yet been answered. the sub - prime chapter will not be closed for some months yet and there are still risks of re - ignition of the acute money market conditions we saw last month. but there are grounds for hope that we are reaching the end of the beginning at least and that the key challenge is moving from stabilising the financial markets themselves to dealing with the impact on the wider economy. structured investment vehicles are funds that issue short - term securities in order to invest in longer - term securities. the latter have typically comprised mainly of mortgage - backed securities and other asset - backed securities. banks sponsored sivs are managed by banks. macroeconomic impact judging that impact is not easy. banking crises have typically reflected macroeconomic difficulties at home. banks have lent too much and too cheaply at the top of the cycle and have then suffered from defaults when policy tightened and unemployment and failures increased. the most recent example in the uk banking sector was during the recession of the early 1990s