“ eurobank ” in the early 1980s had access to marks or francs – today euros – or pounds from its national central bank, but it could not be assumed that in times of stress these currencies could necessarily easily be swapped for dollars. in fact, this very phenomenon was at the heart of the crisis that began to unfold in 2007. it was in europe, where banks had, and still have, a structural need for dollar borrowing to fund us dollar denominated assets, that the market strains first appeared in august 2007. as the crisis intensified, the need for access to central bank funding in dollars required a number of central banks to enter into swap arrangements with the us federal reserve so their domestic banks could borrow us dollars secured by local currency collateral. european banks were by far the largest users of these facilities – about us $ 400 billion was accessed via the ecb and other central banks in europe at the peak in december 2008. of course, it is also in europe that we have seen the epicentre of the most recent stage of the crisis. in some other respects, today ’ s problems are a little different, and perhaps more complex, from those of three years ago. they arise from cross - border lending within a currency area that has a single money but very divergent experiences in terms of fiscal discipline and productivity, and that lacks a well - developed capacity for intra - area transfers – which is being built as we speak. nonetheless, dollar funding for european banks has again tightened up and the swap lines among major central banks have again been activated to assist. this is presumably designed to slow the speed of european bank deleveraging of dollar assets that would otherwise be forced to occur. hogan and pearce ( 1984 ), p 60. bis central bankers ’ speeches lots of people claim to have predicted the crisis, though i doubt that warren hogan, were he here, would claim that he and ivor pearce foresaw it in all its dimensions almost 30 years ago. i think they would perhaps claim that their saga of htrae, where international crossborder financing ultimately produced a crisis, contained many relevant insights. i doubt that they fully appreciated the role that the financial institutions of the leading deficit country – the united states – would play in creating risk and transferring it elsewhere. in their story, the key institutions were those of the country of balancia, where the international accounts initially were balanced. i think they would have expected the response of major central banks to the crisis

might be most effective. in conclusion, the past decade of consolidation and financial innovation has placed increasing pressure on the accounting and internal control systems of banks and corporations, revealing pockets of weaknesses. while policymakers grapple with possible remedies, bankers and their supervisors can do their part by returning to the fundamentals. these include becoming more engaged in understanding the substance behind transactions and maintaining a healthy skepticism. i am confident that the combined efforts of policymakers, bankers, and regulators will restore the confidence of the public and investors and will better prepare us to weather future cyclical downturns.