, the mispricing of assets and risks was not confined to the u. s. subprime mortgage market. many credit risk spreads across the globe were at historic lows in the period before the crisis, after several decades of mostly mild, infrequent recessions in the industrial economies. the broad incidence of narrow spreads in part reflected the activities of investors and intermediaries who were facing the same perceived incentives in many different markets. and asset prices – especially real estate prices – were unsustainably high in a number of countries. liquidity risk had also been mispriced. investors had paid insufficient attention to the maturity mismatch present in a number of investment vehicles, including abcp conduits and money funds. and both investors and intermediaries had assumed that the exceptionally liquid conditions in many markets of the pre - crisis period were a permanent part of the financial landscape. again, with hindsight, we can see that these vehicles were vulnerable to runs once the crisis hit, and these runs did not stop at national borders. michael gibson of the board's staff contributed to these remarks. the views expressed are my own and not necessarily those of other members of the board of governors. moreover, even countries where assets weren't obviously mispriced felt the effects of the growing dislocations when global banks were forced to deleverage and conserve liquidity. their pullback from lending was broad - based and eventually affected many emerging market economies. and the adverse feedback loop between world financial markets and the real economy was exacerbated by the greater global integration of markets for goods and services. trade and industrial output plunged everywhere as consumers and businesses pulled back from spending. notably, although financial institutions in some countries seemed to be more resilient to the growing turmoil than in other countries, all were affected to a degree, and no particular type of regulatory or supervisory system proved itself clearly superior to other designs – either in the buildup or the crisis - response phase. problems afflicted both the fragmented system of the united states and the unified systems of other countries. they cropped up where the central bank was deeply involved in regulation and where it played only a consultative role. and it occurred both in systems that were principles - based and those that had thick rule books. clearly, the deficiencies in both private behavior and public oversight were widespread, and both needed to be addressed. the response to the crisis was global given the global factors

donald l kohn : international perspective on the crisis and response speech by mr donald l kohn, vice chairman of the board of governors of the us federal reserve system, at the federal reserve bank of boston 54th economic conference, chatham, massachusetts, 23 october 2009. * * * i am pleased to participate in the conference discussion of the international dimensions of the recent financial crisis. 1 a striking feature of the crisis was its global character. with markets for financial assets increasingly integrated, often by the activities of globally active banks, no country escaped completely unaffected. the way the problems in the u. s. subprime mortgage market spread illustrated the interconnections. underwriting standards for u. s. subprime mortgages had weakened at the same time that non - u. s. investors, including many non - u. s. financial institutions, had eagerly invested in the subprime mortgage market by purchasing subprime - backed securities. when house prices leveled out and then began to decline, default rates on subprime mortgages started to rise rapidly. both u. s. and foreign banks suffered losses, along with other investors. many of those losses affected asset - backed commercial paper ( abcp ) conduits and similar structures that had invested in subprime - backed securities. many of these conduits were sponsored by non - u. s. entities. the conduits had funded illiquid long - term assets with shortterm liabilities, creating a substantial maturity mismatch. when a few of these conduits began to report subprime - related losses, investors ran from many conduits. the flight was broadly based because investors were uncertain about the incidence of losses and liquidity pressures arising from nontransparent and poorly understood exposures. integrated bank funding markets were an important source of contagion. short - term funding markets in both the united states and europe were disrupted when conduits drew on bank lines of credit to replace maturing abcp, and banks turned to dollar - denominated money markets to raise the needed funds. as the financial crisis deepened, banks hoarded liquidity and became concerned about the exposure of their counterparties in the interbank market to losses from subprime mortgages. spreads between the london interbank offered rate and the overnight index swap rate, a measure of interbank market stress, widened in dollars, euro, sterling, and other currencies. to be sure