Inadequate resources to equip staff and train supervisors Poor contract, property and insolvency legislation. In a securitized world, when default looms, power shifts from the creditor to the borrower. Risk modeling has great limitations, particularly in the loss of liquidity. The illusion of boundless liquidity is just that - an illusion. Marketability is not liquidity.
International diversification fails to provide much protection.
This information must be accompanied by adequate standards of transparency and disclosure, so that all market participants share this information. Supervisors and regulators should share concerns and information across borders so that they can assess trends, which might have disturbing implications for financial markets. There should be substantially improved communications between the industry and their supervisors as the industry is more familiar with and knowledgeable about the rapid changes revolutionizing financial markets. Perhaps, most importantly, every effort must be made to improve the quality of financial supervision in developing nations. In recognition of this need, the BIS and the Basel Committee on Supervision jointly sponsored the creation of the Financial Stability Institute.