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Historically, banks have been at the forefront of financial intermediation, in part because their ability to leverage offers an efficient source of funding. But in periods of severe financial stress, such leverage too often brought down banking institutions and, in some cases, precipitated financial crises that led to recession or worse. But recent regulatory reform, coupled with innovative technologies, has stimulated the development of financial products, such as asset-backed securities, collateral loan obligations, and credit default swaps, that facilitate the dispersion of risk. Greenspan US Fed Dec 2005.

In more recent periods, pockets of weakness have emerged, especially in large syndicated credits... For some institutions, lapses in risk evaluation have come at some cost as asset quality has deteriorated, net charge-offs have risen, and profitability has fallen. Recent reports by certain large banking organisations point to some further deterioration of asset quality. Greenspan December 2000.

The higher-priced segment of the mortgage market, often referred to as the subprime market, has been growing rapidly, from less than 5 percent of all mortgage lending in 1994 to about 19 percent in 2004. Ferguson, US Fed 2005

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