Credit risk derivatives constitute another financial innovation which has played an increasingly important role in the last years. It has contributed to avoiding credit institutions to be heavily impacted by the large credit defaults that have occured recently. Credit risk derivatives have also enabled banks to fine-tune the risk-return profile of their loan portfolios. From a macro point of view, credit risk derivatives are helping diversify and spread risk, under the assumption that buyers of risk will deliberately alter their own risk-return profile. But the ultimate risk remain and as a result, some sectors, such as insurance companies or pensions funds, which hitherto did not feel the direct pressure of a worsening in credit quality, may now find themselves directly impacted, had they sold such derivatives at an earlier stage. Against this background, and beyond the primary objective of achieving price stability over the medium-term, which part should central banks play to improve the functioning of financial markets and promote financial stability? Apart from their operational tasks –such as the management of money market liquidity and the monitoring of large value payment systems– central banks must endeavour unremittingly to create the conditions for the international economy to minimize misalignments in asset prices, excessive volatility, purely speculative phenomena and dangerous herding behaviour. This is the underlying message in central banks' repeated calls for prudence and caution. I would like now to address my third point, that is, the prospects of the European Union enlargement.

This has been evidenced in studies reviewing factors behind currency crises in emerging countries. Macro data –such as balance of payment or 13 fiscal policy indicators– prove to be discriminant-leading indicators from this point of view . However, I cannot affirm that the resolution of market imbalances would result in a reduction of volatility to levels that prevailed before these imbalances were taken into account by market participants. In my view one should not underestimate the part played by technical factors in the persistence of volatility peaks. This persistence in volatility is fuelled by technical features that facilitate the build up of mimetic behaviours (amplifying effects), or that reinforce the links between the various market segments (diffusion effects). Mimetic behaviour is of course by no means a new phenomenon on financial markets. However benchmarking, index management, and risk management techniques may have gradually reinforced this type of behaviour, as participants are under increasing pressure to follow their peers through matching the performance of a benchmark. There is no doubt that the spread of benchmarking allows fund managers and clients to better assess their performance against that of other funds. But, in a context of growing competition within the sector, it may well have increased mimetic behaviour. Some market participants (whose own compensation is closely linked to the relative, rather than absolute, profit and losses they generate) may indeed have come to the conclusion that it would be better to be wrong along with everybody else, rather than to run the risk of being right alone.