Since July 2007, the world has faced, and continues to face, the most serious and disruptive financial crisis since 1929. Originating primarily in the United States, the crisis is now global, deep, even worsening. It has proven to be highly contagious and complex, rippling rapidly through different market segments and countries. Many parts of the financial system remain under severe strain. Some markets and institutions have stopped functioning. This, in turn, has negatively affected the real economy. Financial markets depend on trust. But much of this trust has evaporated.

Significant global economic damage is occurring, strongly impacting on the cost and availability of credit; household budgets; mortgages; pensions; big and small company financing; far more restricted access to wholesale funding and now spillovers to the more fragile emerging country economies. The economies of the OECD are shrinking into recession and unemployment is increasing rapidly. So far banks and insurance companies have written off more than 1 trillion euros. Even now, 18 months after the beginning of the crisis, the full scale of the losses is unknown. Since August 2007, falls in global stock markets alone have resulted in losses in the value of the listed companies of more than €16 trillion, equivalent to about 1.5 times the GDP of the European Union.

Governments and Central Banks across the world have taken many measures to try to improve the economic situation and reduce the systemic dangers: economic stimulus packages of various forms; huge injections of Central Bank liquidity; recapitalising financial institutions; providing guarantees for certain types of financial activity and in particular inter-bank lending; or through direct asset purchases, and “Bad Bank” solutions are being contemplated by some governments. So far there has been limited success.