A more granular disclosure of data could allow the construction of more meaningful sets of indicators and prevent misleading comparisons across institutions. On the analysis of capital adequacy, uncertainly about the computation of risk-weighted assets is shifting the focus to indicators calculated on the basis of total assets or tangible assets, balance-sheet equity and leverage ratios. Clearly, in the medium-term, a higher quality of data for financial stability surveillance and assessment may also be achieved through a better disclosure policy on the part of financial institutions. Benefits would come also from timely and harmonised reporting. 5. What is missing: remaining data gaps and other challenges confronting macro-prudential analysis  While data gaps can never be closed in full – also because they are a moving target – attempts to reduce these gaps are vital. With respect to macro-level data, efforts to improve the effective coverage of the so-called shadow banking sector – i.e. of credit intermediation, liquidity and maturity transformation activities that take place outside the regulated banking system – need to be continued. Important components of the shadow banking system include certain money market funds, structured investment vehicles, off-balance-sheet vehicles (reliant on banks’ credit lines) and securities lenders. Although some progress has been made, data gaps remain that render the proper monitoring and assessment of systemic risks arising from securities financing transactions (notable via repurchase agreements and securities lending) unfeasible. Challenges also arise from the activities of the shadow banking system that go beyond a specific group of entities or types of business.

It allows countries to leverage on the respective comparative advantage and complementarities to reinforce mutual growth. This would be important in the current environment to facilitate cross border economic activity. The liberalisation of the capital account in the form of removing restrictions to foreign exchange transactions would also increase the flexibility of managing such foreign exchange transactions. This would increase the potential to better manage its associated risks, while  BIS central bankers’ speeches  1  the increased efficiency gains would also reduce the cost of doing business. Finally, it is also argued that in a more liberalised environment, there would be greater market discipline which would in turn promote financial stability in the domestic financial system. This however, relies on a sufficient level of disclosure and transparency to allow the efficient functioning of the markets. The internationalization of financial systems is however, not without risks and challenges. The risk of contagion following from the increased connectivity increases significantly, in terms of the extent and speed. The contagion can result from external events and developments that can range from failure of large and important international financial institution to the eruption of wars or political incidents that have regional or global repercussions. Meanwhile, global developments including from global policy spillovers have also resulted in more volatile capital flows. The increased openness of the financial system also increases the vulnerability to economic cycles in other parts of the world.