is driving in terms of further integration. this should provide a powerful incentive for greater speed and ambition in developing the institutional infrastructure that can accommodate the challenges that come with integration. overall, however, the direction of change in the emerging world seems fundamentally reassuring. after a crisis that was in a sense the result of a failure to manage the early stage of financial integration, governments in emerging markets have established a record of credible fiscal and monetary policy management, built more substantial cushions of insurance against potential shocks in external reserves, restructured the currency denomination, maturity and composition of their debts to make them less vulnerable to volatility, and begun to build deeper and stronger domestic financial systems. these changes make it more likely that the progress now underway toward further financial integration - as they move to more open capital markets and more flexible exchange rate systems - will bring substantial benefits in terms of growth and fewer risks in terms of financial stress. the stronger foundation now in place will make the next wave of financial integration more successful. the policy achievements of the last decade are enormously consequential for the people who live in emerging markets. if the progress is sustained, the reduced vulnerability to financial crisis and the enhanced efficiency of resource allocation have the potential to dramatically increase long - run growth and living standards in these countries. and of course the united states, and the rest of the world, has compelling strategic and economic interests in the success of this endeavor. a more complete and successful integration of the emerging economies offers the prospect of a more prosperous and stable global economy. thank you.

basis. the financial crisis exposed significant vulnerabilities in the financial system. without revisiting all the causes and consequences of the credit boom and bust that led to a boom and bust in the u. s. housing market, the bottom line is that our regulatory system failed in two important dimensions. first, a significant number of large, internationally active financial firms reached the brink of failure. second, the financial system was not very resilient when these firms got into difficulty. instead, the threat of failure propagated further shocks that reverberated throughout the global financial system. these two shortcomings reflect many factors including inadequate capital and liquidity buffers, poor incentives to correctly measure, price and manage risks ex ante, the opacity of firm balance sheet and counterparty exposures, and the manner in which large financial firms were interconnected within the financial system. in the end, there was too much leverage in which large amounts of highly illiquid, long - term assets were financed by short - term liabilities. the fact that a large amount of the wholesale funding used to finance these assets was provided by leveraged financial intermediaries to other financial intermediaries increased the bis central bankers ’ speeches system ’ s vulnerability to adverse shocks. as it turned out, the amount and quality of capital was grossly inadequate relative to the quality of the assets and off - balance - sheet exposures of many of the major global banking institutions. moreover, many institutions had inadequate liquidity buffers. the lack of liquidity forced the fire sale of assets, which depressed prices and increased the pressure on capital. when troubled institutions did fail, this exacerbated the pressure on the remaining institutions. aggravated by the lack of transparency about their counterparty exposures and the contingent liabilities they faced, the problems of a single institution quickly became the problems of many. this was fueled in part by concern that the counterparty claims on failed institutions would be frozen and unable to be realized quickly. not only did some core firms have inadequate capital and liquidity, they also faced conflicting incentives as to how to manage their capital resources. for example, many firms that came under stress were slow to cut their dividends or to raise new capital because of fears that such actions would signal their underlying weakness. obviously, the failure to conserve capital made these institutions weaker rather than stronger. the crisis also underscored severe deficiencies in the international dimension of the regulatory environment. financial institutions