the holding of government debt by the banking sector. might that not be a major problem for countries and banks? the financial crisis has shown that there is no risk - free asset. this includes government bonds. the incentives set by the regulatory framework have to be aligned with this insight. obviously, this is not only a european issue. the solution has to be global. we have to discuss this important issue in the basel committee, recognise that there are no risk - free assets and calibrate the rules properly. sensible rules and adequate transition periods can help mitigate all related risks. bis central bankers ’ speeches

increased to unprecedented levels during that period, and international economic and financial integration had deepened considerably. at the same time, emerging economies, especially in asia, endowed with the memory of recent currency crises, had started to build up foreign exchange reserves, partly driven by the desire to hedge against the volatility of international capital flows. what was necessary for this accumulation of reserves were large and persistent current account surpluses, i. e. these countries were consuming less than they actually produced in each year, while some others, mainly advanced economies, were doing just the opposite. these latter countries had been living beyond their means. in some of these advanced countries, the strong consumption growth was driven mainly by increasing household indebtedness. as this had continued unabated over the years, significant global imbalances developed and, until late 2007, a strong global trend of increasing imbalances prevailed in full. this period was also characterised by a widespread tendency of deregulation and the emergence of financial innovations, which were insufficiently regulated. in fact, these trends were closely connected to the strong forces of globalisation. as one example of such innovations in the financial sector during that time, let me mention securitisation. this concept, which had been known in the united states since the late 1970s, relates to the repackaging of assets that sit on financial institutions ’ balance sheets into marketable slices, i. e. securities, with the aim of selling these new securities in financial markets. this sale frees up capital in banks, which can then, in turn, increase their lending. a glance on some us figures serves to illustrate the steep increase in securitisation over the last few years before the turmoil. the outstanding amount of us asset - backed commercial paper, which is only a fraction of the total of the assets generated through securitisation, increased from around usd 500 billion in august 2004 to over usd 1. 2 trillion just three years later. although total issuance of asset - backed securities by banks between january 2005 and august 2007 was more than seven times higher in the united states than in the euro area, monthly issuance in the euro area still reached eur22 billion, on average. this shows that, although more pervasive in the united states, excess lending due to insufficiently regulated securitisation activities also affected the euro area. it is easy to recognise the huge benefits of securitisation for growth, but there are also substantial downs