I. Current situation of the financial system

Financial markets and institutions continue to make progress in adjusting to the new conditions that have prevailed since the outbreak of market turbulence. Banks and other financial institutions have raised substantial amounts of new capital and further capital raising plans have been announced. Institutions have also moved to reduce leverage and build liquidity. Credit and liquidity risk premia have narrowed since mid-March although more recently there has been some re-emergence of strains.

A number of challenges remain. Despite central bank liquidity operations, term money markets in the major currencies remain subject to volatility and wide spreads. Many securitisation markets remain disrupted and assets continue to accumulate on banks' balance sheets. With housing and commercial property markets and economic growth weakening in several countries, write-downs are likely to persist in the financial sector for some time.