In addition, it will be crucial to continuously monitor the progress made in order to keep up the momentum for reform and, possibly, to identify elements that may require further follow-up action. The FSF will play an instrumental role in monitoring the efficacy of the implementation of its recommendations. I would like to point out that some of the financial system weaknesses exhibited during the recent financial market correction present more structural, longer-term challenges and will require our continued attention in the coming years. Let me draw your attention to four important issues in this regard. First, it will be crucial to ensure adequate transparency regarding financial markets, institutions and financial instruments. The availability of adequate information is the basic prerequisite for sound investment decisions, effective risk management and market discipline. In this way, transparency not only contributes to a more efficient allocation of capital, but is also the best insurance against irrational herd behaviour and the propagation of financial turbulence. Various episodes of financial stress, including the most recent one, have clearly demonstrated that the lack of reliable financial information is a key element in the excessive building up and unwinding of financial imbalances. The continuous enhancement of financial disclosure requirements, accounting rules and valuation practices in line with market developments will therefore be indispensable. Second, pro-cyclical features of the regulatory framework need to be identified and addressed.

To ensure progress towards best practices in this field as well as to respond to the increasing need for the effective cross-border mobilisation of liquidity, closer coherence of supervisory requirements and approaches with respect to liquidity risk is also warranted. The recently published consultation paper by the Basel Committee on “Principles for Sound Liquidity Risk Management and Supervision” constitutes an important starting point in that direction. Finally, the institutional arrangements for cross-border cooperation among authorities should be further enhanced, both during situations of financial distress and in normal times. As regards crisis management arrangements, one priority in my view will be to clarify responsibilities and procedures to support timely and well-targeted public sector action. The recently agreed EU-wide Memorandum of Understanding between supervisory authorities, central banks and finance ministries on cooperation in cross-border financial crisis situations could also serve as a basis for improvements at the international level. With regard to ongoing supervision, I fully support the FSF’s proposal to set up colleges of supervisory authorities for the largest globally active institutions by the end of this year. In the  6  BIS Review 86/2008  EU, such informal institutional infrastructures of supervisors to support greater informationsharing and coordination in the supervision of cross-border groups are already in place. Our experience in Europe points to a number of elements that are crucial for ensuring the effective functioning of supervisory colleges, which may also be relevant for further developing the international arrangements in this field.