subsidies and dumping, and also counter - measures, and there are mechanisms for dispute settlement and arbitration. in contrast, the statistical framework for capital flows is, relatively speaking, very modest. and we do not have any framework to deal with disruption caused by volatile capital flows comparable to the world trade organisation ’ s mechanisms for handling disruption from trade in goods and services. the volume of global merchandise trade, valued at us $ 5. 4 trillion in the year of 1998, in fact pales beside the scale of global international finance. the average daily turnover in the world ’ s foreign exchange market stood at us $ 1. 5 trillion in 1998, or roughly 70 times that of merchandise trade. on top of that, the otc derivative contracts had a daily turnover of us $ 1. 3 trillion in 1998, and the notional amounts outstanding at end - june 1998 came to us $ 72 trillion. there is no doubt that the growth of foreign exchange and otc markets, together with advances in information technology, has contributed to cross - border capital flows and enhanced risk management standards. it is, however, legitimate to ask what lies behind these vast numbers. what does it mean for the underlying markets if the financial derivatives trading continues to multiply? do we understand exactly what these us $ 72 trillion worth of derivative positions represent? do we really understand the nature of the fund flows generated from the financial derivative trading in the otc markets? the problem is that we do not have the answers to most of these questions. to start with, there is not even an adequate statistical framework to capture capital flow data. the current data on balance of payments, international investment position, or flow of funds accounts have two major short - comings : ( a ) low frequency of quarterly data ; and ( b ) limited breakdown of data by currency, sector, instrument, etc. the bis, imf and oecd are examples of institutions which have made some attempts to collate relevant statistics but they are far from complete or timely. this is not just a statistical issue for the data compilers but a major policy issue for the authorities and other users. the compilation of high - frequency and detailed data is going to be resource - intensive and there is keen competition for statistical resources. it seems to me high time to take a fresh look at the adequacy of data on capital flows and if necessary review the priorities currently assigned to collection of real sector or other statistical data. challenges of coping with the destabilis

concerns about what a capital raise would signal about the firm ’ s strength, but it also stemmed from an unwillingness to unnecessarily dilute shareholders. the reluctance led to more uncertainty about the adequacy of banks ’ capital positions, which, in turn increased concerns about counterparty credit risk. these worries led to a further deterioration in market liquidity. these dynamics tightened financial market and credit conditions, increasing the downward pressure on economic activity and on the financial system. the supervisory capital assessment program ( scap ) exercise that we undertook in the united states leaned against this. by forcing all of the banks that participated in the scap to have sufficient capital to help them withstand a stress environment, this process improved confidence and increased the willingness of banks to engage with each other. it also made it easier for the banks to be able to tap the capital markets. the scap exercise made a bad state of the world less likely, helping to create a virtuous circle rather than a vicious one. the scap exercise was developed and conducted in response to the crisis and a specific need. now, we need to figure out how to conduct these types of exercises on a systematic basis. such exercises may even need to be hardwired into the supervisory oversight of the financial system. transparency in some critical segments of our financial markets, both before and during the crisis, limited or ineffective disclosure undermined market discipline and this contributed to the accumulation of risk. in the years leading up to the crisis, the lack of transparency contributed to increased risk and leverage in off - balance sheet vehicles, structured credit products and in over - the - counter securities such as asset - backed securities ( abs ), commercial mortgage - backed securities ( cmbs ), residential mortgage - backed securities ( rmbs ) and collateralized debt obligations ( cdos ) and their associated derivatives. once the crisis was underway, the opacity of many of these vehicles, structures and securities contributed to the concerns about counterparty credit risk. this uncertainty exacerbated the erosion in market liquidity conditions and further intensified the crisis. this lack of transparency was present in a number of different places : • valuation. cdos and other securitized obligations were complex and difficult to value. this reduced liquidity, pushed down prices and increased uncertainty about the solvency of institutions holding these assets. • prices. the lack of pricing information led to a loss of confidence about accounting marks. sometimes identical securities were valued differently at different financial