They should identify the  1  See “Report of the Working Group on Capital Flows”, available online at: www.financialstabilityboard.org/ publications/r_0004.pdf. It was produced by a group chaired by Mario Draghi, and on which I served. 2  See “The external balance sheet of the United Kingdom: implications for financial stability?”, Senior, S and Westwood, R, Bank of England Quarterly Bulletin, November 2000, pages 351–64. BIS central bankers’ speeches  1  main economic risks to which they are exposed, either directly or indirectly (via the economy as a whole). Bank regulators should measure and monitor liquidity mismatches in banks, in the domestic currency and foreign currencies. If necessary, governments should act to strengthen banking systems and prudential regulation. Other parts of the private sector are generally not regulated, but they should be subject to accounting and disclosure standards which require transparency about the structure of their financial obligations and claims. An adverse signal from any individual indicator does not mean that a country inevitably faces crisis. Rather, indicators should be employed as warning lights, highlighting potential problems and prompting further investigation. A series of warnings may reflect escalating risks.” My purpose this evening, in the spirit of drawing lessons, is to recapture those insights in the light of our own, advanced-economy crisis. I shall review whether it is enough to look only at current account imbalances for warning signs, or whether gross capital flows, in particular cross-border banking flows, matter too. I will repeatedly come back to the importance of risk premia and balance sheets.

This entails focusing our sights on the path ahead, towards re-building a global financial architecture that will facilitate and secure our economic prospects. With the considerable benefit of hindsight, we now know that finance, if not anchored to the aim of creating sustainable value in the real economy, will become inherently unstable and destabilising to the ultimate goals of greater shared prosperity. There is thus a compelling need for finance to have a greater role in shaping responsible behaviour that underpins a stable and well-functioning economy, and advances the goals of a progressive society and sustainable environment. This is the underlying objective of responsible finance. Of significance, aligning business practices towards responsible finance entails a paradigm shift away from the conventional thinking of finance - the most important distinction being the need to recognise and appreciate that responsible finance delivers value by focusing on its ultimate outcomes, rather than its immediate returns. Responsible finance at its core strives to serve wider objectives that is consistent with, but goes beyond, the predominant objective of enhancing shareholder value. In delivering long term sustainable value, allocative efficiency is achieved in a manner that promotes stability and prosperity in the broader economy and sustainability of the environment. Above all, responsible finance aims to optimise its positive impact on society, economic wellbeing and development. Over the recent decade, the heightened advocacy for ethical and socially responsible investments has also seen the proliferation of financial instruments that cater for both financial and societal objectives.