It seems to me high time to take a fresh look at the adequacy of data on capital flows and if necessary review the priorities currently assigned to collection of real sector or other statistical data. Challenges of coping with the destabilising impact of highly leveraged institutions The third challenge I should like to touch upon is how to cope with the destabilising impact of highly leveraged institutions (HLIs). The issue is how to improve the stability and functioning of the financial markets for all market participants. As there have been extensive international discussions in this regard, I shall briefly recapitulate the key developments and the challenge ahead. BIS Review 24/2000  2  The Asian financial crisis has shown that the highly competitive and globalised financial world has created individual market participants that are huge enough to mobilise, often with the help of leverage, financial resources larger than the GDP of smaller economies. They can build up dominating positions in the markets of smaller economies and influence short-term market movements either singly or through acting in concert. Combined with the lack of information on the OTC market, the highly leveraged institutions can develop potentially excessive and destabilising market concentrations, whether consciously or unconsciously. Under these circumstances, there are two types of scenario where HLIs could pose concerns in their interaction with financial markets. The first scenario is a situation in which HLIs taking excessively large positions are overwhelmed by market forces.

However, visions can come true: take CLS, the Continued Linked Settlement system, which will go into operation in the near future. Central banks and the private sector must direct their joint efforts at 8 researching the feasibility of a collateral pool, as does the Payments Risk Committee in New York . A third challenge relates to in-house clearing and settlement mechanisms at global custodians. This commercial function has undergone a remarkable process of concentration in the last few years. Some of these service providers have become very significant for the stability of the system as we have seen after September 11 of last year. Independent of specific events the question arises whether regulatory control has kept up with this development everywhere. From an organisational point of view, it is problematic that custody activities lie in a grey area between banking supervision and system oversight. In some countries - such as Switzerland - where the tasks deriving from banking supervision and system oversight are performed by separate authorities, the regulatory framework risks being incomplete or at least suboptimal unless the two authorities succeed in establishing a strong cooperation link. This aspect seems all the more important as global custodians tend to become direct competitors to traditional financial market infrastructures. In view of these challenges, there is good reason to critically reassess rules and regulations related to securities clearing and settlement as well as to the way oversight responsibilities are implemented in practice. A predominantly national approach does not serve market needs any longer.