bank had a residential mortgage portfolio that was not particularly exposed to risk. the bank had, however, expanded rapidly over several years, an expansion that was partly based on short - term market funding. when funding markets failed, the bank promptly encountered liquidity problems and was compelled to turn to the bank of england for support. when it became known that the bank had sought government support, depositors quickly lost confidence and the uk experienced its first bank run since 1866. many other banks that were considered to be solid under the applicable regulation also encountered problems when financial market confidence evaporated. something worked : the imf, g20 and wto the imf is an organisation for international cooperation based on a system of mutual assistance among member countries. the imf provides loans to countries experiencing balance of payments problems. the loans are financed by member countries. if the problems stem from economic policy mismanagement, the loan will be subject to specific requirements such as measures to correct policy. when the crisis occurred, the imf reacted swiftly to accommodate the increased need for imf services. the imf ’ s role as lender and interlocutor with the authorities in crisis - hit countries probably helped to limit the crisis. the imf provided support and assistance to countries that were directly affected by the crisis and countries that were innocent bystanders. the sharp increase in imf lending reduced the financial resources of the organization. member countries have now increased their contributions to the imf. during the financial crisis, the g20 has played a prominent role in the international coordination of economic policy. the group launched several important initiatives during the crisis, which were subsequently placed under the responsibility of the imf. all countries stand to benefit from the establishment of international meeting places that the major economies consider to be of interest. however, unlike the imf, the g20 is not a representative body for all countries. even if the g20 account for a large share of global output, most countries are not included, such as low - income countries and regions like most of africa, the middle east and the nordic countries. one possibility is to develop the g20 based on the imf model where countries are represented through constituencies. small 163 / 2009 countries like norway, or at least the nordic countries, could then be represented in a forum for discussion of the policies of major economies. in the wake of the great depression of the 1930s, protectionist measures were introduced in many countries. customs duties were increased to shield domestic

led to higher demand for inputs, and the prices of oil and other raw materials increased. on the other hand, global consumer price growth was pulled down by exports of cheap goods from china and other countries with low production costs. interest rates were lowered in many countries to prevent very low inflation or deflation. in china, a large share of income was saved, either in the form of investment in new production equipment or financial assets. the increased supply of financial savings pushed down global long - term interest rates. lower interest rates encouraged consumers and businesses in other countries to borrow capital from china and other surplus countries. the foreign debt of countries such as the us and uk accumulated rapidly in the years leading up to the crisis. historically low interest rates prompted fund managers in western countries to seek out new alternatives in their search for high yields. new financial savings products were developed and spread to investors around the world. it was often difficult, or even impossible, for investors to value the risk underlying the products. yield potentials can also be increased by leveraging securities purchases. as long as prices rise, the return on equity will increase with the degree of leveraging. on the other hand, the risk of being left with debt, and little or no equity capital, increases when prices fall. in the years ahead of the crisis, high debt leveraging still appeared to be an attractive proposition in an environment of low credit risk and a glut of cheap credit. the result was a surge in debt accumulation in the years preceding the crisis. prices in securities and property markets soared. the build - up of macroeconomic imbalances in the years prior to the crisis increased vulnerabilities and the potential amplitude of a downswing. many observers warned of the risks associated with these developments but no one foresaw how the crisis would unfold, when it would erupt, or its severity. the global financial crisis has revealed weaknesses in the financial system. in retrospect, it is clear that financial sector regulation was not adequate. regulation was primarily designed to ensure that individual banks had sufficient equity capital to protect lenders and depositors against losses, rather than ensuring stability in the system as a whole. for example, there were no requirements stipulating the size of liquid assets a bank must hold to weather periods of failure in market funding. nor were there any minimum requirements as to funding stability. an example of the importance of these conditions is the collapse of the british bank northern rock in september 2007. the