If a task of this kind had been carried out by an independent and impartial body before the crisis, it could have signalled growing vulnerabilities in EU countries. Risk warnings about fragilities related to foreign currency lending, about particularly highly leveraged sectors in some countries, or overvaluation in a number of EU housing markets could have been louder. I would add, though, that none of these elements triggered the financial crisis – rather, they intensified it as the crisis spread to the EU financial system. The crisis also calls for improved coordination and cooperation between the international bodies responsible for safeguarding financial stability at all levels of the analysis. Cooperation between the ESRB, the Financial Stability Board and the IMF, for example, will probably be fruitful in the future, helping to raise awareness of growing vulnerabilities at global level that could not surface as prominently in an EU-focused financial stability surveillance exercise. Cooperation in the risk detection and risk assessment tasks would involve, for example, sharing of technical expertise and of findings from market and policy intelligence efforts. In addition, the ESRB may use these international bodies as a sounding board for its risk assessments, risk warnings and policy recommendations. An ESRB with an EU-wide focus established prior to the summer of 2007 would not have had access to the stepped-up co-operation at global level or to the wealth of information and analysis on the global environment that should be at its disposal as soon as it starts functioning in 2010.

For example, if national central counterparty is not a viable and efficient model for a small economy, then the cost of hedging would increase with higher risk weight under Basel III. Meanwhile, if derivatives are cleared overseas, through regional or global central counterparties, we need to consider implication for cross-border supervisory coordination, financial stability, and development of local financial market and competition. On a related issue of Dodd-Frank Act, restriction on proprietary trading of US bank could impact the liquidity of US dollar markets abroad, as well as liquidity of foreign government bond markets which are the back-bone of their monetary policy operation. Another key issue going forward is the balance of authority between Home and Host regulators. There are concerns about the proposal of Financial Stability Board on cross-border resolution of Global Systemically Important Financial Institutions, or G-SIFIs. The concern is that some Host regulators may not be included by the Home regulator in the Crisis Management Group or resolution planning, even if the institution is systemically important in their jurisdictions. We are glad to see the FSB taking initiatives to identify potential problems. Now it is the time to work together on solutions in an inclusive manner. This is because the inclusiveness of the process assures acceptability and commitment, and reduces the uncertainty from unilateral action of individual countries. These international regulatory  2  BIS central bankers’ speeches  standards have no direct international enforcement power.