Maintaining Stability in a Changing Financial System

the recent turmoil in global financial markets, associated with the u.S. subprime mortgage crisis, has raised important questions about the stability and integrity of the new international financial structure. these events represent the first real stress test of the world’s financial system since the late 1990s when the asian financial crisis, Russian debt default, and long-term capital Management (ltcM) shocked the system. over the past year, credit quality problems in a relatively small part of the u.S. mortgage market have disrupted financial markets around the world and caused large financial losses at banks and other financial institutions. in response, many central banks have provided emergency liquidity to financial markets and institutions, and some have eased monetary policy to limit the spillover of this financial disruption to the broader economy.