The monetary policy transmission mechanism is more fraught with uncertainty and less "linear" than it used to be, as shocks on asset and risk prices introduce discontinuity into financing conditions. These developments underscore two interesting issues in particular that I would like to briefly consider. The first concerns monetary policy responses. It will have escaped nobody’s attention that these responses are not identical across all countries. In my view, this reflects different situations more than divergent approaches. All of the world’s economies are not affected in the same way by property market shocks or developments on credit markets. In particular, we can observe that the distribution of credit remains very dynamic in Europe and that, in most euro area countries, property markets remain relatively stable. More fundamentally, it seems to me that developments in the economic and financial context of globalisation bear out and reinforce the importance given to what, in Eurosystem parlance, we call monetary analysis, i.e. the examination and analysis of the main monetary and financial aggregates. We derive three major benefits from our monetary pillar. First, it favours the anchoring of long-term inflation expectations, which is essential when, as is currently the  1  Guilloux S. and Kharroubi E. (2008), “Some preliminary evidence on the globalization-inflation nexus”, Working paper series N°195, January  2  BIS Review 28/2008  case, instantaneous pressures are strong. Second, it constitutes an integrated framework for the analysis of financial and monetary developments, which is particularly useful in times of structural change and turmoil on credit markets.

I would like to end my comments on the work of the Basel Committee by touching briefly on another regulatory matter currently under review, the treatment of large exposures. This falls within the field of prudential measures additional to the solvency ratio, which aim to ensure the survival of banks in extreme situations. The review focuses on the treatment of exposures to third parties, since that of intra-group exposures has been postponed for the time being. The general principle is that exposures to all counterparties should be subject to limits based on the capital of the bank. That limit has been set generally at 25% of tier 1 capital, although for certain exposures, such as those between systemic banks, it is stricter. Notably, provision is made for the possibility, after an observation period, of limiting exposures to central counterparties (CCPs), although this matter is open and first requires an assessment of the effects of other rules governing relationships between banks and CCPs. Let me now say a few words on some of the main regulatory projects on which the Financial Stability Board (FSB) is currently working, particularly that to promote a new regulatory framework for the treatment of systemically important institutions, i.e. those whose complexity, size and interconnectedness are such that their failure could cause serious problems to the global financial system. This new framework rests on four pillars: additional loss absorbency, effective resolution mechanisms, increased supervisory intensity and more resilient financial market infrastructure. Unquestionable progress has been made in implementing this framework.