of money on the assumption that they would be able to distribute that risk easily into liquid markets. a sizable fraction of long - term assets – assets with exposure to different forms of credit risk – ended up in vehicles financed with very short - term liabilities and was placed with investors and funds that were also exposed to liquidity risk. as is often the case during periods of rapid change, more significant concentrations of risk were present than was apparent at the time. banks and investment banks sold insurance against what seemed like low probability events, but did so at what even at the time seemed like low prices. and on the assets they retained, these same institutions purchased insurance from financial guarantors and other firms that were exposed to the same risks. the crisis exposed a range of weaknesses in risk management practices within financial institutions in the united states and throughout the world. today, a group of the primary supervisors of the largest banks and investment banks in the world released a comprehensive assessment of risk management practices in these institutions. this assessment will help lay the foundation for consensus on changes to supervision going forward in the major financial centers. the report examines a range of practices that helped determine relative performance during this crisis. banks and investment banks with stronger risk management practices and cultures did substantially better. the most common failures were in how firms dealt with uncertainty about the scale of losses they would face in a less benign economic and financial environment ; the scale of the cushion they built up against that uncertainty ; how well they managed the internal tension between risk and reward ; and how quickly they moved to mitigate risk as conditions deteriorated. the typical arsenal of risk management tools relies, by necessity, on history and experience, and as a result has only limited value in assessing the scale of potential future losses. these limitations were particularly damaging in a period in which significant innovation in financial instruments and market structure was coupled with relatively stable macroeconomic and financial conditions. uncertainty about the future, and the greater complexity of leveraged structured products, created a dense fog around estimates of potential loss, making institutions and markets more vulnerable to an adverse surprise when conditions changed, and making it harder to manage the many principal agent problems inherent in the financial business. in effect, some major banks and investments banks made the choice to follow the market down as underwriting practices eroded. they took on more exposure to low probability but extremely adverse events, despite the potential consequences of getting caught when the music stopped. and even though the largest firms were able to move quickly to protect themselves as conditions

re experiencing today. low r - star those of you who know me won ’ t be surprised that i ’ m starting with low r - star! the neutral rate of interest — the rate that prevails when monetary policy is neither restrictive nor accommodative — has been an area of study, and a personal passion, for the past two decades. i could talk about r - star at great length, but you may be relieved to hear that for the purpose of this speech, there ’ s just one point i want to make : r - star has fallen, not only in the u. s., but around the world. 1 / 4 bis central bankers'speeches fundamental shifts have been occurring in the two main drivers of r - star over the past two decades : demographics and productivity growth. lower fertility rates and aging populations, as well as slower productivity growth, have pushed down r - star by as much as two percentage points in a number of developed nations. these structural shifts are having fundamental effects on real interest rates, growth, and inflation. a number of advanced economies have inflation below desired levels and longer - term interest rates that are well below where they were a decade ago. there are, of course, a few outliers, but the commonalities between the world ’ s developed economies are becoming more and more apparent. there ’ s no doubt that the u. s. is experiencing first - hand the effects of the structural shifts in demographics and productivity growth. but the fact that these changes are a common experience for so many developed economies creates challenges to our economic prospects at home. slowing global growth which brings me to the second trend i highlighted : slowing global growth. this story — of low interest rates, low inflation, and slow growth — is showing up in the data. the latest numbers from the international monetary fund ( imf ) follow the recent trend of steady downward revisions of growth estimates. their forecast for global growth for 2019 is now 3 percent, which is the lowest since 2008 – 09, and it ’ s not hard to think of scenarios in which growth slows even further. 1 in the old days, central bankers used to worry about inflationary pressures being too great. old habits die hard, and i ’ m always on the lookout for signs that inflation is rising too fast. but in the current climate it ’ s inflation that ’ s too low that ’ s of greater concern. you see, my five - dollar cup of coffee masks an