This strengthened surveillance framework has allowed us to take pre-emptive macroprudential measures to tackle potential imbalances in specific sectors before they  BIS Review 34/2010  1  develop into significant vulnerabilities. In parallel, our financial sector regulations and supervision have been strengthened significantly, aimed at ensuring that financial institutions and markets take prudent risks and have enough buffer to cope with potential systemic risks. Countries in Asia have progressed on the same path I mentioned after the Asian crisis. In addition to the individual efforts, another important development is the regional efforts on precautionary measures. The latest development of the Chiang Mai Initiative Multilateralization also helps bridge the gap between the IFIs and emerging market economies on the liquidity arrangement and timely disbursement. What is still ongoing is the establishment of a regional surveillance unit for ASEAN+3 that will facilitate the prompt disbursement of these liquidity facilities and provide us with a better understanding of risk and vulnerabilities in the regional context. Global crisis: addressing root causes would be the same as the Asian crisis Looking back at how far Asia has come from the crisis has put into perspective the recent global crisis and policy responses. In my view, this past crisis was also caused by a combination of excessive liquidity, and inadequate surveillance and supervision of both the regulated and shadow banking sectors in advanced countries. Too much trust was placed on the market mechanism, which was proven to have failed.

Hence, on financial sector surveillance, I support the idea that all systemically important economies need to participate in financial sector surveillance or FSAP, including the stress testing, to support the global surveillance objectives. As for the overall global surveillance, we need more effective role of the IFIs, in particular the IMF. Effective surveillance means the capacity to ensure right policy actions by the public sector and sufficient risk awareness and management by the private sector so that policies and market responses generate positive feedbacks. Underpinning effective surveillance is of course the credibility and legitimacy of the governance structure of the IFIs. In this regard, I believe that we all need to be sincere in pushing for continued improvement of the IMF for it to be a truly credible and effective organization for surveillance. 2  BIS Review 34/2010  Dealing with the inherent instability: developing deep and broad financial markets and a multi-currency system I’d like to emphasize that even if we have achieved all the above and embraced good global citizenship, it is almost certain that there will be the next crisis. But, hopefully, this will not happen in the immediate future, and it will perhaps come from different sources of vulnerabilities. So, it is imperative that both the public and the private sectors remain very vigilant and risk-focused in identifying the changing nature of risks and new sources of vulnerabilities. The last point I’d like to touch upon is on the vulnerability in the current international monetary system.