1. Is Global Capitalism Out Of Control ? Howard Davies Director The London School of Economics Hay 23 May 2008 1

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3. Structure the charge sheet how the crisis has evolved the likely economic and geopolitical consequences the needed responses 3

4. “We are in the midst of a financial crisis the likes of which we haven’t seen since the Great Depression” George Soros ‘The New Paradigm for Financial Markets’ 4

5. Case-Schiller Index Source: www.wikipedia.org 5

6. Subprime Mortgage Pool Securitization Capital Structure Containing Subprime Loans PRINCIPAL PAYMENTS Principal payments are made sequentially from the top of the capital structure to the bottom LOSSES Mortgage pool losses are allocated sequentially from the bottom of the capital structure to the top 100% 28% 20% 11% 7% 0% Note: Ratings are Rating Agency defined 6

7. 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 7

8. Recent ABX BBB Price History Price Note: ABX BBB – Standardised basket of 20 home equity; ABS reference loans from home equity deals (issued within 6 months prior to index issue date Source: Markit Partners 8

9. Global Growth 1 In per cent. The dashed lines show the consensus forecasts made at the end of the preceding year; the dots show forecasts for 2007 abd 2008 as of December 2007. Annual changes in real GDP and consumer prices. Average of countries available in Consensus Economics. Source: Consensus Economics; national data; BIS calculations. 9

10. Global Inflation 1 In per cent. The dashed lines show the consensus forecasts made at the end of the preceding year; the dots show forecasts for 2007 abd 2008 as of December 2007. Annual changes in real GDP and consumer prices. Average of countries available in Consensus Economics. Source: Consensus Economics; national data; BIS calculations. 10

11. XXX 1 Sixteen OECD countries; weighted averages based on 2000 GDP and PPP exchange rates. 2 Relative to nominal GDP; 1995=100 Sources: IMF; OECD; Bloomberg; national data; BIS calculations and estimates. 2 11

12. XXX Sources: OECD; Bloomberg; Datastream; Merrill Lynch; JPMorgan Chase; national data 1 1995=100 12

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14. Sources: IMF; CreditFlux Data+; ISDA; national data; BIS calculations. 14

15. House prices increase in Europe 15

16. Sovereign Wealth Funds – Top Ten by Assets Source: www.wikipedia.org 16

17. Top 10 Global Banks by Market Cap RankingBankCurrent Market Cap 1Industrial & Commercial Bank of China$252, 814 2HSBC Holdings PLC$202, 254 3China Construction Bank$195, 387 4Bank of America Corporation$163, 196 5JPMorgan Chase & Co$158, 375 6Citigroup Inc.$124, 054 7Bank of China Limited$107, 507 8Wells Fargo & Company$96, 866 9BNP Paribas$94, 259 10Banco Bilbao Vizcaya Argentaria$86, 816 Source: www.corporateinformation.com/Top-100 17

18. Nominal GDP Financial depth Source: McKinsey Global Institute Global Financial Stock database 18

19. Seven areas of change 1.Asset prices and monetary policy 2.Tighter controls on leverage 3.More dynamic reserving policies 4.Accounting and ratings changes 5.Better risk management 6.Redesigned pay incentives 7.Stronger political support for regulators 19