In closing, let me summarize my points in the form of suggestions for the current efforts on the EWE. First, the focus of EWE should expand beyond detecting misalignments to include assessing vulnerabilities and robustness of the global markets, system, and institutions. Second, EWE should be a two-level process. The global level process focuses on the systemically important markets, institutions, and economies. At this level, the FSB can play a role in ensuring consistent implementation of regulatory standards, as well as undertaking stress-testing to check the robustness and the resilience of the key markets, institutions, and system. Likewise, EWE at the country-level, which can be a part of the normal article IV cycle, should have an additional focus on stress-testing the resiliency of the economy and domestic financial system to large external shocks. The shock scenario can be a common set of assumptions provided by the IMF for all countries and draws on EWE findings at the global level. This will provide a good connection between the perceived global systemic risk and the abilities of the individual economies to handle them. Lastly, EWE must be part of a global policy process, in that information of EWE must be used and if needed leads to timely policy action. On this note, increased transparency of the process, as well as its recommendations, can be a way of allowing market to have a view and force the issue. I hope this has been useful. Let me stop here and again I want to thank the IMF for the invitation.

Their relationships with sponsor banks are sometimes very ambiguous. There may be a gap between the legal commitments taken by the banks through liquidity support and credit enhancements, and the “true” level of responsibility they felt obliged to take to protect their reputation. This conjunction of complexity and fragility may have been too much for the system to bear. So it is worth to pause and ask ourselves whether we can eliminate those vulnerabilities and still keep the benefits associated with securitization, especially in terms of financial innovation. One good starting point is to look at the economic and financial rationale for securitization. Securitization is meant to perform two functions: the first, and most "advertised" in recent years, is to allocate and distribute risks, hopefully to those agents and investors best equipped and most willing – to carry it. The "slicing and tranching" process allowed banks to offload credit risk from their balance sheets and transfer it to other financial investors. But, historically, securitization is borne out of the more simple desire to shortcut banking intermediation by using markets to directly match the needs of lenders and borrowers. Since both have different liquidity preferences, this usually involves the issuance of tradable – i.e. liquid-securities which can be sold to the ultimate investors. Thus, a well functioning securitized system would meet two characteristics: (1) allow for a permanent reallocation of risk between market participants according to their preferences, expectations and risk aversion; and (2) make liquidity (market liquidity) permanently available throughout the system.