We have thus been faced with a broad litany of serious problems affecting many of the institutional requirements and elements that are so vital for maintaining confidence, for the efficient allocation of resources, for the orderly working of any financial system and for the effective supervision thereof. I shall return to these matters later. But let me first say that, faced with the above-mentioned multifarious shocks, the international financial system showed a capacity for resilience that should be viewed as highly satisfactory. It is not easy to assess which factors have contributed to increasing, and to what extent, such resilience. Among them, however, mention should be made of the following: the priority given to stability by many monetary and fiscal authorities during the preceding long expansionary phase; the improved workings of more integrated and better informed international financial markets with increasingly flexible trading systems; the high levels of solvency, via own funds and provisions, attained by banks during the previous upturn, which has made it easier to soak up the losses now arising; and, finally, the advances made by many banks in risk management, providing for better risk identification and monitoring, risk diversification and the reallocation of risk towards final investors, on increasingly efficient derivatives markets. Despite the resilience of the international financial system, both the independent developments within the system and the aforementioned events which perturbed the markets have repercussions for banking supervision. These are worthy of mention.

It is worth inquiring into the causes of the world economy's resilience in the face of these shocks. Firstly, it is probably indicative of the greater microeconomic flexibility of both the developed and the emerging economies. It appears the structural reforms of recent years, aimed at increasing the adaptability and responsiveness of economies to adverse effects, are beginning to bear fruit. Consequently, it is crucial to further such reforms, especially in times of plenty, when their cost is lower, so that when lean times arrive the economy has the spontaneous adjustment mechanisms in place to reduce the cost and duration of the crisis. Secondly, from the macroeconomic policy standpoint, the recent economic slowdown shows the importance of having sufficient fiscal and monetary policy leeway to be able to react to adverse disturbances, meaning in turn that prices and public finances should have performed favourably during economic upturns. Fortunately, on this occasion, the slowdown found the main economies in a relatively balanced inflationary and budgetary situation. This was conducive to a monetary policy response (which was more intense in the United States, in step with the sharper reduction in the pace of activity in this country) and to the operation of the automatic stabilisers, without jeopardising the long-term fundamentals. The notable exception is Japan. Here there is no further room for additional stimuli on the demand side owing to the economic and financial problems inherited from previous years. And this has led to the economy going into recession for the third time in ten years.