The new environment  But the financial world today has globalised both across borders and different kinds of firms. Risk transfer processes have mushroomed. And there has developed a corresponding will and ability to exploit them. The new world is characterised by new concentrations of risk. They can be built - and dissipated - with bewildering speed. Before looking at the consequences of the changes for financial stability oversight it is worth reflecting on the main causes of this new world. There are of course many drivers, but to my mind development of the new products and risk transfer techniques is based on the precondition of liberalisation and technological advance. 5. Liberalisation  As to liberalisation, it was little wonder that the rise in popularity of derivatives in the global economy was stimulated by the emergence in the 1960’s of that most liberal of markets: the international capital market. This burgeoning and open market place provided the preconditions to develop the new techniques. Regulation was minimal and market imposed. Disintermediation and securitisation gathered pace from the early 1980’s. And as derivative instruments were developed, newly emerging players including hedge funds and others entered the scene. So today we see a global market place of truly astonishing size and breadth where contracts straddle both national boundaries and the old functional areas of banking, insurance, and securities: and where the old silos are no more. The international capital market was itself in my view a major stimulus in encouraging individual governments to liberalise their markets.

Here I would point to market liberalisation, technological advance and the development of a range of new instruments for transferring risk. Third, market participants need to be aware that financial stability starts with them. Integrity and sensible restraint are the bedrocks of stability. This requires heightened awareness that the leverage in the system as a whole, encouraged by the new risk transfer techniques, contains its own vulnerabilities. Fourth, in response to the changing environment, the financial authorities have had to adapt their models and procedures for regulation and oversight. Greater disclosure and transparency can be antidotes to the information deficits in an increasingly complex, and sometimes opaque, financial system. International cooperation is at a premium, both in delivering a consolidated view of globally active firms, and in seeking to clarify who is expected to do what when difficulties arise. They need to match this level of technical expertise with the private sector, and to contend with new or heightened risks in such areas as business continuity. Fifth, as a central bank, we need to be as clear as we can about the nature of our contribution to the oversight process. At the core is our concern with the maintenance of liquidity, and our capacity to inject it when necessary. Much of our financial stability work is aimed at identifying potential liquidity strains, and what responses are likely to be most effective. Lastly, whilst the challenges for oversight may be daunting, progress in addressing these challenges is significant.