also to some extent to their investment activities. with the markets being shut - down for almost all financial institutions and the economy being strangled by lack of financing, the central banking community had to resort to a number of unconventional measures to support the continued provision of credit to the economy and to sustain the implementation of the monetary policy in an environment where its transmission could be endangered. in the language of risk managers, “ unconventional measures ” means larger exposures. asset purchases, long - term operations, full - allotment tender procedures, relaxation of the collateral framework … all these measures have something in common : they raise the bar for risk management in central banking precisely in those times in which our brains are wired to shout “ run ”. but of course, we must exercise a disciplined and calmed responsibility and accept our role in crisis situations. indeed, central banks are likely to be more exposed to risks in the event of a crisis. at the same time, they need to remain financially sound to ensure their independence and credibility in the conduct of monetary policy. this is particularly important at times of crisis, when inflationary expectations risk becoming unanchored. this is why it is crucial for central banks to continuously re - think their risk management framework to stand ready, even in the “ good times ”, to switch to the “ crisis mode ”, and also to ensure that the decisions taken in the midst of a crisis will not jeopardise their ability to pursue their institutional objectives in the future. 5. concluding remarks to conclude, it is crucial for a central bank to fulfil the highest governance standards in organizing its risk management function and applying state - of - the - art tools, in order to ensure that the right decisions are taken in the design of the risk control framework and the implementation of monetary policy and investment operations. by doing so we may also be encouraging other market participants to follow. therefore, our responsibility is twofold. as you see, the challenges we face may be slightly different from those faced by private institutions. but the lessons learned from the crisis, and the actions to be taken in the near future may not be so different. we are all on the same boat, learning how to sail towards a safe port. thank you for your attention. bis central bankers ’ speeches

that have been advanced by commentators include : ( i ) the excessive borrowing by financial industry and the private sector due to the prevailing low interest rates ; ( ii ) the build up of financial disequilibria and asset price bubbles ; ( iii ) the biased system of incentives that led investors to excessive risk - taking ; ( iv ) the failure by regulators to adapt to the state of the evolution of the financial system ; ( v ) the market failures related to information asymmetry and lack of transparency about risks and characteristics of the different products ; ( vi ) the existence of obvious conflicts of interests affecting key agents needed in the securitisation process ; and ( vii ) finally, the failure of investors to conduct due diligence, blindly relying on information and models that proved to be inappropriate to capture some very relevant risks. it is probably not very adventurous to say that the bursting of the house price bubble in the us, with the ensuing increase in the default rate and the severe underperformance of the subprime mortgage sector, was the spark that ignited the financial and economic crisis. in the summer of 2007, as highly leveraged investors were forced to unwind some positions to cover margin calls, liquidity in some fixed - income markets dried out completely. investors found themselves trapped and were forced to sell assets at considerable discounts. in some cases further sales – particularly for subprime mortgage backed securities – were forced by stop - losses and value - at - risk based risk budgets. liquidity risk - related losses piled up over losses registered as a result of fair value accounting as risks in the real estate sector started to materialise on a scale unseen since the great depression. in the absence of asset liquidity and with many of the main actors in financial markets undergoing painful processes of loss - recognition, consolidation and deleveraging, some of the assumptions of the models regularly used for risk management did not hold anymore. for bis central bankers ’ speeches instance, this was the case of the assumptions of price continuity and sufficient arbitraging activity that underlie proper market functioning. furthermore, a variety of assets had to be priced using models that were over - reliant on assumptions and inputs such as credit ratings that had come under strain, thereby increasing the scope for model risk. as a result, uncertainty about the “ true ” fair value of the assets being held by financial institutions increased significantly. as if the discovery of these “ forgotten ” risks – the liquidity risk as well