facing each bank as well as the risks that might affect the entire sector. and they also help to raise awareness of cyber risk at board level. the insights that we obtained in 2015 and 2016 were applied in three ways. first, they informed a dedicated section in our methodology for on - site inspections. second, they were used to create new analytical tools for our off - site supervisors. and third, they were used to produce a cyber risk profile of each bank. so we are working to obtain a comprehensive picture of what is happening out there. but how to deal with cyber risk? well, the world health organization says that the best way of stopping diseases from spreading is basic hygiene : washing your hands. and the same is true for it. basic it “ hygiene ” can take banks a long way. have the latest updates been installed? are passwords strong enough? have backups been made and their restoration tested? such simple things are so important, but often 1 / 2 bis central bankers'speeches neglected. so we are taking a close look at our banks to see whether they are following the relevant standards and best practices. and there are plenty of these ; i cannot stress this enough. we also work with the european banking authority, the eba, on how to supervise cyber risk in an effective and harmonised manner across europe. as for the euro area, we plan to issue our supervisory expectations on how banks approach it risks in general. and what we expect clearly goes beyond basic it hygiene. this will be an important step for two reasons. first, it will help to forge a common understanding of it risks between supervisors and banks. and second, it will help to ensure a harmonised treatment. to increase awareness and to communicate our expectations, we will organise seminars and discussions with banks. and we also look beyond the euro area, of course. we cooperate with supervisors worldwide to align priorities and exchange best practices. to sum up, we take cyber risk very seriously, and we approach it from various angles. my advice to banks is to do the same. it is vital to be alert and ready to react. thank you for your attention. 2 / 2 bis central bankers'speeches

pre - crisis global macroeconomic environment was characterised by low interest rates, low inflation and sustained economic growth. this strengthened investors ’ risk appetite and contributed to the underestimation and under - pricing of risk. the intensified search for yield fostered the proliferation of innovative financial instruments such as structured finance products. rising leverage and excessive credit growth increased the vulnerability of the financial system. i am very grateful to kevin koerner and stephan sauer for their valuable input. this fragility set the stage for the turbulence in financial markets which started in summer 2007. with the end of the boom in the us housing market and increasing interest rates on sub - prime mortgages, delinquency rates on mortgage loans rose. the value of mortgagebacked securities dropped heavily. from the sub - prime market segment, the tensions gradually spilled over to most other asset markets, in particular the credit derivatives markets, corporate bond and equity markets, and also to the money markets, not only in the us but also in the euro area and elsewhere. with the bankruptcy of lehman brothers on 15 september 2008, the crisis sharply intensified. let me now illustrate the developments in financial markets since the beginning of the turbulence with the help of some charts. chart 1 shows the recent movements in euro area stock prices, represented by the dow jones euro stoxx index. from 15 september 2008 until mid - january 2009, this broad index declined dramatically, losing about 30 % of its value. since july 2008, the index has declined even more, by about 50 %. as you can see from the chart, the most severe stock market losses occurred in the banking sector, with a decline of about 50 % since mid - september 2008 and about 70 % since summer 2007. chart 2 illustrates the exceptionally high level of uncertainty in stock markets, here measured by implied volatility taken from stock options on the dow jones euro stoxx 50 index. in autumn 2008, implied volatility skyrocketed to new historical highs not only in the euro area but across the globe. at the heart of the crisis has been a general deterioration of confidence in the health of the banking sector and worries about a weakening economic outlook. this has led to a gradual and global repricing of credit risk. as shown in chart 3, the yield spread between corporate bonds and government bonds has widened markedly. in particular, lower - grade financial firms have been affected mainly on account of increased credit risk perceptions and a much lower general risk appetite. perhaps