Where it can be made comprehensible via a succinct piece of analysis in the introduction of a Prospectus, the Authority could require that. What I am suggesting would entail Listing Authorities and securities regulators more generally thinking about themselves somewhat differently and, if I may say so, being somewhat less bound by the traditions of public equity markets. This seems unavoidable given the growth in private offerings of complex securities and the involvement of banks in securities-market intermediation. It might require legislation in some jurisdictions to entitle securities regulators to take into account financial stability9. Prior to the crisis, that had hardly been debated anywhere, but IOSCO’s principles of securities regulation have recently been revised to identify reducing systemic risk as one of the three objectives of securities regulation.10 That innovation is big, but it needs to be incorporated into national regimes and practices. Second, is it always right to make a clear distinction between laws and rules governing “public” issues and private placements? Viewed against the historical objectives of securities regulation – fairness, transparency, and investor protection – the public market v. privatetransaction distinction does indeed seem valid. But we need to debate whether the separation is so neat when the public policy objective of financial stability is taken into account. That is because the creation and private placement of very large amounts of particular types of security can affect the amount of risk being borne by the system as a  8  Confusingly, the language and structures vary considerably across countries.

Nigel Jenkinson: Developing a framework for stress testing of financial stability risks Comments by Mr Nigel Jenkinson, Executive Director, Financial Stability, Bank of England, at the ECB High Level Conference on “Simulating Financial Instability”, Frankfurt am Main, 12-13 July 2007. I am very grateful to Adrian Penalver, Prasanna Gai, Geoff Coppins and Piergiorgio Alessandri for input and helpful comments. *  *  *  1 Developing a rigorous, coherent and robust framework to analyse the resilience of the financial system to withstand strain presents many well-known and formidable challenges. Financial system behaviour is very difficult to model, particularly under stressed conditions when strategic interactions between participants and risks of spillover and contagion come to the fore. And, thankfully, episodes of stress are rare, so history offers only limited assistance. 2 We are currently witnessing a period of major change in financial markets. The global financial system is evolving at a tremendous pace, fuelled by rapid innovation and crossborder integration, and supported by lower macroeconomic volatility. Innovation and integration may have a profound impact on the behaviour of the financial system under pressure. In particular, risks may have been dispersed more broadly through credit risk transfer and increased participation in capital markets. The resulting reduction in credit risk concentration may have strengthened the robustness of the financial system to withstand small to medium shocks. But equally, greater market integration has strengthened the ties between financial firms within and across borders, both through direct exposures and through common exposures to asset markets.