1. The Credit Crunch and its Consequences Howard Davies Director, LSE Moscow 17 th November 2008

2. Act One: Subprime

3. Case-Schiller Home Price Index 2000-2008 Source: Wikipedia

4. Mortgage Origination by Product (%) Notes: 1.Total mortgage origination excludes seconds and home equity lines of credit 2.For relative growth versus 2001, 2007 annualized based on 9 months of date

5. Recent ABX BBB Price History Price Source: Markit Partners

6. Resecuritisation SUPER SENIOR AAA AA A BBB Equity Capital Structure Containing Subprime Loans Subprime Mezzanine CDO Containing BBB Subprime Bonds 100% 28% 20% 11% 7% 0% 11% 7% 11% 8.6% 7% 100% 40% 0% CUMULATIVE LOSSES

8. Act Two: Liquidity

9. Sources: Bloomberg and Bank calculations

10. Act Three: Unravelling -Bear Stearns, Indymac, Wa mu -HBOS, RBS -Fortis, Dexia etc.

11. Act Four: Meltdown

12. Act Five: Pumping

13. Act One:Subprime Act Two:Liquidity Act Three:Unravelling Act Four:Meltdown Act Five:Pumping The Credit Crisis: A Five-Act Tragedy

14. EU Growth Rates: IMF Forecasts

15. Source: www.ft.com

20. Five Ways 1.Legitimacy – why Luxembourg and not China?

21. Global Committee Structure - A Regulator’s View G-7 (Gov’ts) Financial Stability Forum WTO OECD (Gov’ts) FATF (Money Laundering) IASB (Accounting IASC Bank for International Settlements (Central Banks) G-10 (Central Banks) CGFS CPSS Basel (Banking) IOSCO (Securities) Joint Forum IAIS (Insurance ) Monitoring Group IAASB (Audit) PIOB IMF World Bank (Gov’ts) IFIAR (Audit) Source: Adapted with permission from Sloan and Fitzpatrick in Chapter 13, The Structure of International Market Regulation, in Financial Markets and Exchanges Law, Oxford University Press, March 2007

22. Five Ways 2. Simpler, co-ordinated mechanisms which better reflect the shape of today’s markets

23. National Regulatory Structures Source: How Countries Supervise their Banks, Insurers and Securities Markets 2007: Central Bank Publications 57 35 2 49 3 54 28 7 39 10 Other bank regulators Central banks as banking regulator Central bank as one pillar No Central Bank interest Non-Central Bank Central Bank

24. Five Ways 3. Speed: Basel 2 took a decade

25. Five Ways 4. Stronger links between macroeconomic surveillance and regulation A new G (G12) Standing group of Finance Ministers

26. Five Ways 5. Political leadership

27. Five ways to fix our Financial Architecture 1.Legitimacy – why Luxembourg and not China? 2.Simpler, co-ordinated mechanisms which better reflect the shape of today’s markets 3.Speed: Basel 2 took a decade 4.Stronger links between macroeconomic surveillance and regulation 5.Political leadership

28. “ Bank failures are caused by depositors who don’t deposit enough money to cover the losses due to mismanagement”. Dan Quayle

29. The Credit Crunch and its Consequences Howard Davies Director, LSE Moscow 17 th November 2008