On 1 May 2008, the Bank of England published its half-yearly Financial Stability Report. The report aims to identify major downside risks to the UK financial system and so help financial markets participants manage and prepare for those risks. The report sets out key issues for the UK financial system, which include:

1) The need for better and more frequent disclosure of exposure to complex financial instruments, perhaps to a common template.

2) The need for authoritative guidance from accounting standard-setters on how to value financial instruments when markets are no longer active.

3) Strengthening risk management practices at firms, particularly liquidity risk management (see Legal update, FSA publishes a review of liquidity requirements for banks and building societies).

4) Reviewing the role of credit rating agencies.

5) Basel II may need adapting.

6) Whether there should be a special insolvency regime for failing financial institutions (see Legal update, FSA, BofE and Treasury publish proposals for reform of bank insolvency procedures).

The report also comments on the causes and progress of the credit crunch. It states that "estimates implied by prices in some credit markets are likely to overstate significantly the losses that will ultimately be felt". The Financial Times comments that the Bank of England's assertion that assets are mispriced will raise again the question of whether authorities should step in to buy up mortgage-backed securities themselves.