hermann remsperger : financial market turbulences – some observations speech by professor dr hermann remsperger, member of the executive board of the deutsche bundesbank, at the conference “ bond markets in emerging market economies – financial globalisation, vulnerabilities and data needs ”, frankfurt am main, 31 january 2008. * i * * introduction ladies and gentlemen first of all, let me welcome you to tonight ’ s dinner in the japan tower. i think this is a very suitable location, given the fact that japan has recently taken over the g7 / g8 presidency from germany. i hope you all enjoyed today ’ s presentations and discussions on bond markets in emerging economies. tonight, i would like to take the opportunity to turn to a topic that is not directly related to the topic of our conference but is of key relevance, also for emerging markets. i am going to discuss three aspects of the recent financial market turbulences that i find particularly important. first of all, i would like to talk about the originate - to - distribute model, a segment in financial markets that has grown dramatically over recent years and has played an important part in the turbulence. second, i will look at the role of risk management, and, third, i am going to consider some regulatory issues. but before addressing these three points, let me remind you that there had been early warnings that the benign conditions in global financial markets would not last forever. among many others, we at the bundesbank had pointed to obvious risks, such as very low risk premiums, the complexity of financial instruments and of the models for their valuation. however, i do not want to pretend that we had foreseen exactly when and how the financial turmoil would emerge. for instance, the very strong impact on the interbank money market came pretty much as a surprise. the provision of liquidity by the eurosystem and operations in cooperation with other central banks have eased tensions in the money market. however, some of the underlying problems still persist. actually, recent events show that confidence in financial markets has not yet returned to normality. meanwhile, banks had to take off - balance - sheet assets on board and make substantial writedowns. some had to look out for fresh capital, which was partly provided by sovereign wealth funds from asia and the middle east, an aspect that may play a role in further discussions on sovereign wealth funds. we have also seen spillovers into other market segments. for instance, the

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